Nouriel, that is all fine and dandy but no body seems to care. Stocks are off to all-time new highs and the financial press are gaga over this report so why should we care. If the general impression disseminated to the general public is positive, that should translate into a continuation of the US consumption frenzy above and beyond their means and thus a healthy economic picture lies ahead, not a meltdown.

weak data = Fed ease, stocks rally  consensus data = lower volatility, stocks rally   strong data = economy strengthening, stocks rally   bank loses $4bln = bad news out of the way,stocks rally   oil spikes = great for energy companies, stocks rally   oildrops = great for the consumer, stocks rally   dollar plunges = great for multinationals, stocks rally   dollar spikes = lowers inflation, stocks rally   inflation spikes = will inflate all assets, stocks rally   inflation drops = improves earnings quality, stocks rally   no further comment

the stocks will keep rallying untill all bears capitulate. So from now on I am a bull. Others, please join me “bear in the bull’s skin” movement.

bottom line, until unemployment rate go above 5 or 6, you can hardly say that we are in recession. NR, your call is wrong again

“Give them a fish a day and you will feed them once a day, teach them how to fish and you will feed them for the rest of their lives” Do not worry you know how to fish, but what is offered today is a fish a day.

If you havd been watching the LEI you would have seen that the economy is getting better, not worse. There is no recession in sight now. This problem has been swept under the rug and we will never know how truely bad it was. All that matters is that stocks are bullish as hell and anyone on the sidelines here is being passed by like a dork at prom…

Obviously, interest rates don’t matter to most folks. Credit cards carry what, 15% interest rates-idiots!  WASHINGTON (MarketWatch) — Outstanding U.S. consumer debt rose at an annual rate of 5.9% in August, pushed higher mostly by a hefty gain in credit-card debt, the Federal Reserve reported Friday

I just checked the FED homepage to see how much the consumer debt is. It gives it as 2.5 trillion. Is this the whole private debt? I thought that it was a lot more. The public debt is 9 trillion. If the private debt is “only” 2.5 trillion, it is not that serious as I thought. Or do I miss something?

It’s going to take a lot more terrible news before the stock market begins to lose its superbullish nature. The US economy refuses to go into recession just as Bush refuses to get out of Iraq. Stubborn seems to be the fashion everywhere.

In searching for debt numbers, I found this nice page about the various components of US debt: http://mwhodges.home.att.net/nat-debt/debt-nat-a.htm . There is only one way to describe it: total failure.  If the flagship of the global capitalism is in such a catastrophic state, then the whole system must fail sooner or later. 

Debt is healthy in all forms – consumer discretionary, mortgage, LBO debt, increasing debt/equity ratios, etc. quit fussing about the backbone of growth being a negative. It is good that people are comfortable consuming beyond their means. It would be prudent to go out and borrow money to get long the stock market. Live the American Dream. Life Takes Visa After All…

It’s not that the problems have been swept under the rug; quite the opposite. The problems have been brought to light and losers selected. Those losers get killed. Then the lingering uncertainty, which Nouriel has quite rightly identified over the past years, is gone and the markets can charge ahead.  At least, that’s what the bulls are hoping.

I’m as pessimistic as anyone but I wonder if it’s possible to get too close to the day-to-day numbers. For example, if one didn’t get into the actual real estate market in the last few years and say you were to try and get in soon since this is a so-called ‘buyers’ market’ with price reductions and incentives from builders and property resales…well now lenders will look at docs and income and debt ratios and guess what…it’s not as easy to purchase investment properties even IF you do find a great deal.  I know there’s a lot of stock traders here but I believe more wealth has been built in the past by actually owning(holding) real estate whether residential or commercial properties. I don’t mean ‘flipping’ but holding over a longer period through cycles.  So it’ll be harder to use leverage for investors and primary home owners in the future. There’s always ‘owner carry’ which will make it easier to purchase the RE deals.  Also with so many subprime, alt-A, and even prime borrowers set to lose their homes to short sales or foreclosures, well…this has to be ‘good’ for rental markets because families have to live somewhere. Buyers who have lost their homes will have poor credit from their foreclosures and may even face deficiency judgements and possibly tax consequences from short sales.  So the available buyers and RE investors who can qualify at the stricter lending standards and income checks will shrink since many can’t qualify for what they would like to buy but the available renters who have to rent will increase which will be good in the long run for property owners who offer rentals.  If investors bought too late in the game, the rents won’t cover mortgages and they’ll bail also leaving more properties available at reduced prices in the future.  Buyers are waiting to see how low RE prices go but when it comes time to buy to get a deal, will the buyer get financing and will mortgage rates be higher in the future making the cost of buying go up also? If one holds RE for the longer term and was able to get in at cheap mortgage rates and can rent properties out for enough rents to meet mortgages, the RE bubble may still pay off for some RE unvestors who got in when the getting in was easier.  Multi-plexes or even duplexes pencil out the best for rental income. Most single family homes even bought five years ago won’t pencil out for rents. Inflation should actually keep rents high in many areas even with more rentals coming to market. Another thing RE critics focus on are the few really bubbly markets like las Vegas and Miami and san Diego but much of the country did not appreciate at the double digit pace that creates an unsustainable bubble. Do you see any ‘bubble’ blogs for say Fargo or Duluth. It’s California mostly with Florida, Nevada, and Colorado with the big blow-ups in valuations.  If you bought and the price blew up 100% or more, that’s a long way down to lose all the equity. If you bought late in the game and the payments are not possible due to income after payments adjust, walking away is necessary.  At any time in the history of real estate, buyers say it’s too expensive and prices will never get any higher that the present time. Buyers thought RE was too expensive 30 years ago. Buyers think it’s too expensive now. To think that RE prices will NEVER go any higher than today with continued inflation, is ignoring the history of real estate. Cycles do occur but the upward march of prices never ends or why should it end this time? Comic were 10 cents in 1962. What did a house cost then? It’s hard to believe in a longer view of price increases but what evidence is there that prices will just reverse permanently into a downward spiral and the day comes when comics will be 10 cents again?

The actions of the market are a mystery to me also. Gary Dorsch has some explanations in his newletters – don’t know how much will be available without a subscription – check out the archives in September. He explains that the U.S. and global stock markets movements are all about liquidity – the more liquidity, the higher the markets. http://www.sirchartsalot.com/newsletters.php 

ashkan, you think too much. the fact is, current home price is not affordable. so there is no rush to purchase home yet.

The bubble may be hissing, but it has not burst. Until consumer credit tops out, there is enough air to keep the bubble intact. The crash is nearer, but it won’t happen until the consumer credit card is denied. I don’t think credit cards can save you for too long.  If this was good news, maybe the main stream media would have voiced this news louder: ”Consumer Borrowing up Sharply”  http://ap.google.com/article/ALeqM5hvFxPJys9xNqYjr8t8A0O7bQUs3gD8S3AGF03

Here’s a more detailed discussion of the employment data.  September Employment Rebound Lifts Market  One of the main points: The large gyrations seen in the government’s employment data are due to the relative roll of the BDM (Birth Death Model). Over the last twelve months, the BDM has accounted for 69% of the job creation in this country. It is a scary thought when 69% of the jobs created in the most widely-used employment data set are statistically made and suspect to large revisions.

Out in the real world, the economy stinks. Ask the average American how they are doing, and you get a far different picture than rosy Wall Street. The consumer confidence index is a much better predictor now days than unemployment, since many people are disemployed or not participating in the official labor market anymore.

@Written by Lyle Burkhead on 2007-10-04 15:55:38  Here are some examples of sterilization: http://economictimes.indiatimes.com/Markets/Forex/RBI_intervention_pulls_Re_down_from_9-yr_high/articleshow/2433567.cms  Guess only mature central banks can pull it off to further deepen their bond markets.   Summary: Given that a global asset bubble has got to deflate, each country faces a simple choice, (i)break the peg and limp along OR (ii) be the last one standing to accept the global deflation by keeping the peg and become destitute.  I think it is fair to give Bernanke some credit (of course, we don’t know what we don’t know). If we do nothing the global asset bubble WILL cause terrible deflation. Given a choice between hyperinflation and devastating deflation, we should pick the former – just ask Japan. Its also a great pre-emptive currency strike before SWF’s / CB’s dump dollar assets.  Given that it’s a global asset bubble – it has now spread to the BSE Sensex – someone *will* experience the severe resulting deflation. Given that you panic first if there’s a panic, I think Bernanke has panicked first. Now China has a choice, (i) continue with the peg, experience a point-of-no-return asset bubble and then a massive deflation Japan style OR (ii) let go of the peg and take the pain right now. Its now a fight to the death between US export of inflation and China’s export of deflation.   India’s RBI has already buckled (panicked even before Bernanke), opting for a stronger rupee and will not want to get caught in the cross-fire – but will ease the pain of a stronger rupee.   

Wait until after the election and after the Olympics.

Stock are up simply because it’s safe heaven compared with any other asset.  So most probably a buble is being created in the stock market especially in the emerging market such as India, China and Brasil.  Global imbalance, again most probably will readjust in an abrupt and disruptive manner next year, sending stock to bottom and at the same time yeld in long end will shoot up.  Next year will be good time to buy an iPod instead of Gold. just switch the business news and listen to music while waiting for ALL market to readjust in a painfull way. Hoepfully it won’t create political instability or an increase of protectionism…in that case maybe it’s better to buy an Helmet.

The financial crowd that makes a living on BS now propagates the notion that we don’t need to worry as the US sinks under the weight of plummeting real estate values, because the “global economy” will steam ahead.   The propaganda word they have coined for this is “decoupling”.   But forget about the fact that the Asian economies are export and investment driven—not consumption driven. Consumption is about 35% of GDP in China (compared to 70% in the USA).  And secondly, forget about the fact that their exports are driven by the US consumer.   And thirdly, forget about the fact that their investment is driven by massive printing of their local currency as their central banks accumulate giant stockpiles of US dollar reserves (which are causing their economies to overheat big-time as we speak).  This notion of “decoupling” has been part of what has propped up global stock markets and commodity markets lately (in addition to “the Fed will save us” mantra).  The US consumer is the driver of the global economy–pure and simple. A US consumer that has been propped up by a US credit securities creation machine (fuelled by recycled foreign capital).  As well, the plain fact of the matter (which be should be very obvious by now–but nonetheless ignored by many) is that the world financial markets and the world economy over time have become increasingly SYNCHRONIZED as a result of globalization of capital flows and advances in communications technology.   EVERYTHING moves up and down increasingly together. If you calculated the correlation co-efficient among the world’s stock markets and the world’s bond markets, I’m very confident it would be very high, and far higher than it used to be 10, 20, or 30 years ago. The same thing goes for the world’s various economies—there is far higher synchronization in growth then their used to be and I am sure that a correlation co-efficient would demonstrate that in spades.  But nonetheless, the Wall Street propaganda machine would have me believe that there is going to be this big DIVERGENCE in growth patterns (between the US and the rest of the world), and that for this reason I should just go ahead and plow my money into stocks and commodities.  

-It is fascinating to observe the DOW’s irrational upward trend in light of both positive and negative news.  -The data from the birth-death model are revealed by astute observers on this blog to be noise masking the obvious downward trend of employment. -Predictions on when unemployment will reach its greatest highs in this cycle would be of great benefit. -The accusation of fascism so eloquently brought forth is particularly alarming. -A cleanup of political and financial corruption is long overdue.  -The people of character in the world must demand and create political and financial change or this fantastic run of creativity and prosperity in human history is over. -Finding people who truly think for themselves and who have not become so partisan to one failed ideology or another is so rare that future prospects do not seem positive. -Despite this, man is resilient.

I agree with Pr. Roubini´s comments on the employment report.  There is also a possibility that some of the statistics may have been falsified, deformed or omitted. Stagnation accompanied by inflation is a symptom that capitalists are not able to obtain profit. Speculation in housing and stock markets is a symptom of this, and it will be sustained at all costs, in order to make profits for speculators. It is impossible to know beforehand how long the crisis will last or how deep it will go. However, one or two banks in the USA have already gone bankrupt. At a certain moment, it will all turn around preserving capital, not increasing it. 

Story in the Wall Street Journal sheds a bit more light on what consumers are doing to get their cash fix:  ”Despite potential tax and investment consequences, more individuals have been borrowing from their 401(k) plans or taking hardship withdrawals in recent months, some retirement-plan providers say….  Many in the field expect more 401(k) borrowing in 2008 as consumers struggle with tighter credit and potentially higher mortgage payments.”  

Re — Guest on 2007-10-06 07:37:12  Re – consumer borrowing is going up, an how long can it go  The consumer debt is at 2.5 trillion (and the mortgage debt is at 10 trillion). Why couldn’t it go on forever? Why can’t the consumer debt go up to 10 trillion, 100 trillion, or 1000 trillion? The lenders securitize these debt so on paper they have profit. Those people who buy the securities make profit not on the interest paid after the debt but by selling the securities for more than they were bought. It can even happen that the consumer who borrowed the money in the first place, invest in a fund that invest in debt securities, so in the end the consumer makes profit on his own debt. Debt becomes wealth. It makes everyone (banks, funds etc.) rich, so why couldn’t it go forever?   This whole thing should be familiar to everyone. It is the classic pyramid scheme. And we all know how such schemes end: when participants leave it in large numbers. In the case of the pyramid scheme of global capitalism, it will happen when the USA baby boomers start to retire in large numbers. These people will want to spend the money that does not exist, because debt is not wealth. We still have some 5 years before this will start. I don’t agree with people who say that there will be a big crisis or stock market crash or something like that next year. If anything, we will probably see a golden age never before seen in the next 5 years, leading up to the beginning of the end.

From Naked Capitalism blog (http://www.nakedcapitalism.com/2007/10/floyd-norris-skeptic-of-job-creation.html) Saturday, October 6, 2007  Floyd Norris: A Skeptic of the Job Creation Stats    I must have problems with authority. One of my forms of recreation is looking out for statistics, particularly government releases, that don’t seem to comport with reality.  Fortunately, I have plenty of good company in this endeavor, including (but far from limited to) Barry Ritholtz, Michael Shedlock, Dean Baker. A frequent target is the nonfarm payrolls report (see here and here for past examples), particularly its dubious “birth/death model” which attempts to allow for jobs created by new firms (or conversely, lost due to businesses closures).  Oddly, the usual suspects refrained from attacking the validity of Friday’s report. Perhaps they felt the fact that it has been revised significantly and frequently is starting to speak for itself (last month’s 4,000 loss, for example, has somehow morphed into an 89,000 gain).   This month, the criticism comes from an unexpected quarter: the restrained and evenhanded Floyd Norris of the New York Times, in a blog post, “Assuming Jobs”. While he maintains his levelheaded tone, he makes no bones about not liking the data:   The employment report is being hailed as good news, proof that the economy is stronger than it appeared after last month’s bad report.  Well, maybe.  As reported, the last six months have seen an average job gain of 112,000 — the lowest such figure for any six-month period in three and a half years. But that is probably overstated.  The most interesting part of the report to me is that the government now thinks it overstated job growth in the year through March 2007 by 297,000 jobs. It will later restate those months.  The employment numbers come from a survey of employers, but the numbers put out by the government are not what the survey found. Instead, the statisticians add a fudge factor, to account for jobs created by new companies that the government does not know about, less those lost when employers went out of business and did not respond to the survey.  In the 12 months through March, that fudge factor added 1,073,000 jobs to the total reported. The government now thinks that about a quarter of those jobs did not exist.  Chances are that most of the overstatement came in the later months of that period, as the economy began to weaken, and that it is continuing now.  Since March, the fudge factor has added 839,000 jobs to the total. And the total increase it has reported, before seasonal adjustment, is 1,709,000.  What all this means is that a significant part of the employment gains this year came from the fudge factor, or the birth-death model, as the government prefers to call it.  Of those 839,000 jobs added, 150,000 were in the construction industry. Anybody want to bet that the number of jobs created by new construction companies, less those lost from failed builders, is that high? Anybody want to bet it is positive?  Comparing pre-seasonal adjustment figures to figures after adjustment is risky, and the fudge numbers are not available on a seasonally adjusted basis. But it is worth noting that, after seasonal adjustment, the government thinks that over the last six months the economy has added 671,000 jobs — fewer than the fudge factor has added before the adjustment.  The bottom line is this: Job growth this year is mediocre if you accept the figures as reported. But we have good reason to think they are overstated, and will be revised lower at some point.  Today’s figures were better than many expected, but they do not indicate a strong economy, and they should not provide a reason for the Federal Reserve to conclude all is well with the economy.  Update, 3:45 AM: Whoops. Dean Baker is indeed on to this item, and due to the difference in his style and readership, is more pointed than Norris:  However, it is worth noting another item in the report. The September report included preliminary benchmark revisions to the establishment survey based on state unemployment insurance records. These records, which provide a virtual census of payroll employment, show that the establishment survey overestimated job growth by 297,000 in the 12 months from March of 2006 to March of 2007, an average overestimate of approximately 25,000 per month.  The obvious culprit in this overestimate is the imputation for job growth in nearly created firms that could not be included in the survey. It would seem that the Bureau of Labor Statistics (BLS) overestimated job growth in new firms last year.  This fact is relevant to the September jobs data because BLS has actually imputed slightly more jobs into the establishment survey in the last three months than it did over the same period last year. If the imputation led to an average overestimate of job growth of 25,000 last year, it is reasonable to believe that the overestimate may be at least as large this year, since the economy seems weaker by most measures.  Reported job growth has averaged 97,000 over the last three months, so if BLS is overstating job growth by 25,000 a month due to a faulty imputation for jobs in new firms, the error would account for a substantial portion of reported job growth. We’ll know the answer to this one in September of 2008 when next year’s benchmark revisions are first released, but it is worth keeping an eye on this issue.   Posted by Yves Smith at 3:04 AM   Topics: Dubious statistics, Economic fundamentals  

 Hey, big Andy’s back !  Ready to spit out the details of your bullish portfolio for us yet, Andy ?  

Guest asks how we can say a consumer led recession is coming, when consumer debt is up?  Guest, if you follow retail numbers, you see they are down. You are following only credit card numbers? I don’t mean to come down harsh on you, but lower retail, including durables like cars, at the same time that consumer debt is rising has led many of us to conclude that consumers are turning to credit cards to pay not for “stuff”, but for necessities like food, gas, and perhaps property taxes.  Housing sales are down, and 40% of jobs created since 2000 are housing related. That will have an impact, because those jobs are not being replaced by a new sector.  Another starling comment, this from CNN a couple weeks ago: data shows credit card default rates are (flat or falling, can’t recall), while foreclosure are rising, implying to their analysts that consumers will do anything to keep up their credit card payments IN PREFERENCE over their mortgage payments, because the credit card is their lifeline to meet their daily expenses!!!!!  This is a serious serious serious!!!! problem.  The housing cash out refis were done among the subprime people (many had their homes paid off) to overcome the weak economy: they could not save enough to handle a major issue like job loss, divorce, medical bills, so they tapped their house when an emergency arose.  This time, that bill will go unpaid. Most Americans have no safety net. Once their credit card is full, they are homeless.  And credit cards cannot go on foreever. They raise you to 30% if you are late. See how long you can last at 30%.

@Guest on 2007-10-06 07:37:12  ”Professor Roubini’s thesis is predicated on a consumer slowdown. We saw yesterday that consumer borrowing is going up, not down as NR has suggested. Borrowing has just shifted to credit cards from home equity.    ”I would really like to hear some opinions on how long this can last, and what the ramifications will be. Unfortunately these post are dominated by nihilists rather than real economic debate.”  The short answer is that no one knows how long it can last. There are too many variables; it’s like trying to predict the weather. If you read this blog for a while, you will find that the posters are not all alike. I keep reading because some posters make well informed points that would not have occurred to me. Other posters just clutter up the forum, but it only takes a few seconds to glance at their posts and skip them.  Whether there will be a consumer slowdown depends on many things, such as what is going to happen to the dollar. Another page on this site-  http://www.rgemonitor.com/blog/economonitor/218870  adresses this question with a link to an article by Paul Krugman-  http://www.economic-policy.org/article1.asp?src=bpl&aid=183&iid=51&vid=22&id=  This is a 32 page PDF file. It starts with Krugman’s article, which is about 20 pages of close reasoning, and then there are comments by Kevin O’Rourke and Giancarlo Corsetti. This is the level on which the subject should be discussed. If you want a higher level of debate, why don’t you set an example? You could post your comments on Krugman’s article, either there or here. Show us how it’s done. You might also sign your post.  

On the employment report –  The BLS reported unemployment rate drastically undercounts unemployment claiming that many of the unemployed have dropped out of the labor force. The labor participation rate has dropped sharply since 1999. Total number of people employed is only slightly higher than it was in 1999. Population growth, immigration, and minimal employment growth doesn’t square with a low unemployment rate. Remember in the ’90s economists were surprised when a low unemployment rate did not result in higher inflation — it resulted in higher labor force participation. Now we are getting layoffs, foreclosures and only a small increase in the unemployment rate. I will bet that the BLS will soon report a drop in the labor force participation rate.