US retail sales slowing down as saving-less consumers are on the ropes
Same store sales grew only 2% in September relative to a year ago (i.e. they fell in real terms). Sales grew only 0.3% in September relative to August; and sales in the first week of October were flat relative to the previous week.
This slowdown in consumption is not surprising as the saving-less and debt burdened US consumers is now on the ropes and at a tipping point. Headwinds against consumption include sharply falling home prices and home values (now falling at a 9% annual rate based on the Case-Shiller/S&P index), sharply falling home equity withdrawal (now down to about $140 billion at annual rate from its $700 billion peak in 2005), a credit crunch in the mortgage markets that is now slowly spreading to other types of consumer credit, a falling consumer confidence, high oil and gasoline prices (with oil hovering around $80), concerns about the financial turmoil and volatility and a slowing and slackening labor market where – in spite of still positive job creation – the rate of job growth is slowing down and many other indicators of the job market signal a slackening of this market.
With consumption being 72%, with residential investment still falling at a 15-20% rate in Q3 and with capex spending by the corporate sector being flat in Q3 (after two months of falling durable goods orders) and the credit crunch in financial markets still serious in spire of a modest and tentative mending of the liquidity crunch, the most likely outlook for the US economy is still one of a hard landing.
199 Responses to “US retail sales slowing down as saving-less consumers are on the ropes”
C’mon Nouriel, your looking at 3% GDP growth for Q3 and stocks at all-time new highs.
From the minutes: “In preparation for this meeting, the staff continued to estimate that real GDP increased at a moderate rate in the third quarter. However, the staff marked down the fourth-quarter forecast, reflecting a judgment that the recent financial turbulence would impose restraint on economic activity in coming months, particularly in the housing sector. The staff also trimmed its forecast of real GDP growth in 2008 and anticipated a modest increase in unemployment. Softer demand for homes amid a reduction in the availability of mortgage credit would likely curtail construction activity through the middle of next year. Moreover, lower housing wealth, slower gains in employment and income, and reduced confidence seemed likely to restrain consumer spending in 2008. “
Read Ben Bernanke’s Lips,”Inflation is absolutely not any problem”. Home heating bills on the rise http://money.cnn.com/2007/10/09/news/economy/heating/index.htm?postversion=2007100912 Price of oil heat this winter forecast to jump 22 percent, or $319. Natural gas users can expect to pay 10 percent more – report. NEW YORK (CNNMoney.com) — No matter how you heat your house, this year will cost you more than last, according to a government report Tuesday. Americans will spend $977 to heat their homes this year, averaging for all fuels across all sections of the country, according to the Energy Information Administration. Those heating with oil can expect to pay $319 more this year compared to last, according to a government report Tuesday. That’s nearly 10 percent higher than the $889 spent last year and the highest amount ever, not adjusted for inflation. The previous record was $948 in 2005-2006, according to EIA. Americans who use oil heat will be hit the hardest. Due mostly to higher crude prices, nationwide-average oil heating bills this winter are expected to be 22 percent higher than they were a year ago, EIA said.
Stocks are right back to 2000 in terms of mania. There are no bears left, google now the biggest market cap US stock??? and even in the face of everyone lowering GDP estimates and housing estimates for the next few quarters, earnings estiamtes for S&P companies continue to move higher. This is now dangerous once again, plain and simple.
“google now the biggest market cap US stock???” bigger market cap than walmart, hardly the largest mkt cap, believe that is Exxon, I dont think Google is in the top 10 We are far from the 2000 goofiness, but the multiples are getting pretty heady and some tech companies are just stupid in their valuations, it is what it is though. Personally earnings estimates are garbage also, all of these companies sandbag their earnings now and whataya know, they beat “expectations”.
I have told this before : The day NR becomes bullish is when to cash out. He is one of the last bears standing now, he has to fall before the market runs out of bears and starts going down.
Nouriel is No-Real Be real nouriel.. Give it up. You are losing credibility fast. Recession is not happening anytime soon. You’ve been talking recession for more than 14 months now. You have never explained why your predictions are not working. Everytime there is a market correction, you shout louder with your pessimistic views. I have a feeling that you are out there to prove a point, not analyze facts objectively. We are looking at 2.5-3% growth here. We WILL have recession SOMEDAY but not this Quarter or this year. Sorry, but you have caused plenty of readers to lose money. Its good that you are not running a fund.
Hello Nouriel, One of the things I was wondering was that you have supported the 1/2 basis point cut. Hasn’t this led to a dollar rout and won’t it lead to greater inflation? Sandy
Now a rallying dollar, because the Fed is not going to ease in Oct, is good for stocks. Stocks are the Fed/Govt way of clouding reality. It is a tool for them to manipulate to support their vision (lies) in order to maintain the status quo…
I have not lost money on NR’s advice. Besides where did he make investing reco’s? (that’s not rhetorical, I’m asking)I read many on the economy and evaluate their analysis with my own criteria. There are plenty bears left, strong and weak alike, Peter Schiff, M. Panzer, Panepinto(sp), Doug Kass, M Metz, Ritholtz, Mish, J Battapaglia(sp), G. Brown, J. Rgers, some its very specific, some macro. Stocks, GDP, and earnings are not leading indicators,… that’s right I said stocks are not leading indicators, they should be but if you look at price movements its often on old news,…its debateable. Bottom line NR is very good with analysis.
This can get very wild until it gets bad. Insanity has to become insane before things start to gloomy.
I have not lost money on Nouriel’s advice either – have you heard of the ABX? do you see retail stocks breaking highs? Why don’t you go back to January and look at what people were saying about RMBS and CMBS – how silly do they look – its going to be the same story – timing is the hardest part – and after reading some readers comments – I feel like im reading random walk down wall street.
http://www.financialsense.com/fsu/editorials/jain/2006/0904.html One consequence of the rise in Consumption Debt over an extended period, mostly pushed on the middle class, is rising inequality. This is one consequence that takes a very long time to correct. If you listen to people like Greenspan and Bernanke, who act as if they are “very concerned” about the problem of rising inequality, which they have contributed the most to!, you will hear lame excuses like education gap. What a crock. Is the education gap in the US much higher today than in 1973? Most importantly, the rich are NOT the most educated; it so happens that the most educated serve the richest, who happen to be lot less educated then them! BTW, Bush administration’s solution to narrowing the inequality is, you guessed it, “No Child Should be Left Behind” program! I heard an administration official claim that, just a few days ago. You will find direct correlation between the increase in debt on the middle class, as percent of income, and the rise in inequality. And this correlation is a result of causation. This time, the banking Crooks have taken the problem to such a scale that the middle class in America will be decimated. America will become a nation full of bankrupt households most of whom were formerly middle class. It does not bode well for the stability of the whole political system. The current Peak Debt may well foreshadow the collapse of the American political system, as the world has known it since 1776. And that would be a long life for a political system. Circa 2020s: It was a good system for most of the time it lived. May it rest in peace.
the stock market and the economy are not in sync. it wont be the first time in history.. you can chase the momentum, and feel vindicated but it doesnt invalidate the analysis which is based on hard facts. whereas stock prices are based on hard facts AND investor psychology. remember the nasdaq bubble ? stock analysts from Goldman (M.A.Cohen) to Deutsche (Ed Yardeni) were busily providing the arguments why the valuations then made sense, while everybody was ridiculing Buffett for not getting involved oh well.. and do you remember the real estate bubble ? Miami condos..? and now you are going to say, the stock market in 2007 is different .. ?
Doesn’t matter what reality is. Even though we may feel it, the orwellian masters of statistics will never let us see it. They thrive in the opaque abyss behind the curtain of truth. Lies, damned lies and statistics. There is too much power and money on the line to let dominance of the reserve currency fade into history. Official reports are what matter and they will always be spun to be positive. Bad news is good news and official perception equals reality, If it means deceit, so be it. Throw in a subservient media machine to push it on the uncaring, ignorant masses more concerned about Britney Spears and Paris Hilton. As you sense, complete and utter disgust resides here with our whole corrupt system.
Nouriel has undoubtedly helped to convince many people not to go ahead with real estate “investing” plans over the past year. So, he’s at least saved people from losing their shirts. Also, where has he ever given out stock picking tips?
“S&P estimated that, on a purchasing-power parity basis, the United States would contribute only 9 percent of world growth in 2007, compared with China’s 33 percent and India’s 12 percent.” 9% of world growth would be awesome in the current environment, but the US dollar has to recover its losses for the year just to get back to “purchasing power parity”. US GDP is negative for the year in Euros.
I do commercial insurance claims. My insured’s tell me business is more than bad. I deal with people accross the country. What if we are in a recession and the PTB’s just have not told us.
As Henry Liu writes, The circular recycling of dollar-denominated debt was made operative by the dollar, a fiat currency that only the US can print at will, continuing as the world’s prime reserve currency for international trade and finance, backed by US geopolitical military power. Dollars are accepted universally because oil is denominated in dollars and everyone needs oil and thus needs dollar to buy oil. Any nation that seeks to denominate key commodities, such as oil, in currencies other than the dollar will soon find itself invaded by the sole superpower. Thus the war on Iraq is not about oil, as former Federal Reserve Chairman Alan Greenspan suggests recently. It is about keeping oil denominated in dollars to protect dollar hegemony. The difference is subtle but of essential importance. Since 1993, central banks of all trading nations around the world, with the exception of the US Federal Reserve, have been forced to hold more dollar reserves than they otherwise need to ward off the potential of sudden speculative attacks on their currencies in unregulated global financial markets. Thus “dollar hegemony” prevents the exporting nations, such as the Asian Tigers, from spending domestically the dollars they earn from the US trade deficit and forces them to fund the US capital account surplus, shipping real manufactured product wealth to the US in exchange for the privilege of financing further growth of the US debt bubble economy.
The professor looks at only very few parameters of the economy system and draws conclusions. I have to admit that initially I was trilled by his extreme views, but months later, I realized that he was just an average economist with very narrow view. If the professor is a fund manager, he will be a failed one.
Well if the economy is going to turn down it sure is taking a long long time to do so. Inflation the last I checked was under 2%/yr and the Dow and SP500 just made new highs today. How long can one fight the facts or the tape? The is an economy that can’t be sunk. Here and there a bit of damage, a few nicks and scratches, but overall just sailing right along.
The professor examines Macro trends. They sure as heck aren’t great! The trend is ever higher levels of outsourcing of white collar jobs, friends. In the Financial sector many of you claim is our raison d’etre now that manufacturing has been hollowed out this is the order of the day and ACCELERATING. Sooner or later, I for sure don’t know when, the reality will catch up with those living in the bubbles just as Las Vegas, San Diego and Miami have/will continue to show. No more cheap credit. We’re reverting back to a mean for Real Estate. Hmm you have to make a down payment again, wow! That’s new financial innovation in action. If you short you do so at your own expense. I viewed the professor’s real estate/sub-prime observations as being dead on and TIMELY. High yield borrowers will be impacted by the crunch. This always happens so look for more defaults in the future. Game’s over. Too much speculation and leverage to have a soft landing. A prudent man, not a bear nor a bull would take some money off the table. A gambler will continue to place bets and rack em up. No one talks about the inevitable tax increases coming. What will this do on a macroeconomic level??
Written by Guest on 2007-10-09 16:53:23 >>Inflation the last I checked was under 2%/yr …
Coventree CEO saw disaster looming JACQUIE MCNISH AND TARA PERKINS Globe and Mail Update October 8, 2007 at 9:46 PM EDT Months before Canada’s asset-backed commercial paper market collapsed this summer, Coventree Inc.’s [COF-T] top executive warned company directors and executives that a “hurricane” might soon devastate one of the fastest-growing segments of the popular short-term debt market….
If you are a person who believes that the economy is doing well, then you are a person whose beliefs will never be shaped by accurate data. Instead, you should act on what your dreams are telling you. If Frank Knight told you to buy Google, liquidate everything you have and buy, buy, buy.
Credit crisis puts law firms in conflict pickle Most have clients on both sides of issue JACQUIE MCNISH Globe and Mail Update October 3, 2007 at 7:07 AM EDT …”Unless the Montreal Accord can peacefully solve the ABCP problem, people involved in the discussions said Canada’s major pension funds, corporations and other investors face a potentially ugly global war with the foreign banks over who has rights to billions of dollars of collateral owned by the trusts that issued the commercial paper.” ”This could get very nasty,” said one lawyer involved in the discussions. One firm that could be in a ticklish position is Stikeman Elliott LLP. The law firm is a key adviser to CIBC, which actively sold the now-troubled commercial paper to its clients.
Dave Chiang; Based on your thoughts, what do you feel is going to happen? Inflation, hyperinflation, deflation? Do you see a short cycle of one and then a long cycle of another? How does China’s decision making change the plan towards inflation or deflation? Do you see the dollar reach bottom and turn around? How about Gold? good during inflation but during deflation?
Economy only grew at 1.8% in Q3. September PCE dropped sharply guest. You need to revise and update.
The professor looks at only very few parameters of the economy system and draws conclusions. I have to admit that initially I was trilled by his extreme views, but months later, I realized that he was just an average economist with very narrow view. If the professor is a fund manager, he will be a failed one. I disagree. He is looking at the key and main parameters, consumer spending. It is slowing, job growth has slowed in 2007 because of it. The market is a irrational retard. It is so lost, much like in 29, the collapse will be even more impressive than any in post-WWII era. I feel bad for them. JGU, except the slowdown, it has arrived(really since January it has been here). Now we wait for recession. If the Prof had waited until the housing bust had really gotten going, he wouldn’t be a year off on predictions, but nobody is perfect.
Hi All, Just wanna share. The other day, one of my colleagues asked me, “I shorted the market. Now it’s shooting up. What do you think I should do?” I was both shocked and angry. Shocked because I’m now making a decision for you. Angry because, as a professional and independent trader/investor/speculator/player/participant/whathaveyou, you should have and make your own decisions (bad or good). And so, folks here who have been lambasting the Prof for his lousy/extremist/antitrend/antimarket money losing views, I do pity you. Serious. Anyway, Im a bear and an obstinated egoistic one too. I hate to lose and I want to win. But i make my own decisions. Views there are a plenty out there, but choice its only mine.
Anyway, back to markets and views, I think we are all going to see a dip in either the 4Q07 or 1Q08. Higher prices are bound to eat up and restain the consumers who roughly made up 60-70% of the US economy. Couple that with lower interest rates on your returns, im not talking about the priviledged few who have the means to invest, and gloomy job prospects it doesn’t look that good to me. A sustained weak USD will bring the US general population and consumers to their knees. Stocks as an excellent indicator of the economic health? Well, crashes, panic and doom started at or near the peaks of the stock markets right?
The problem with hedge funds driving the market higher and forcing short coverings is, it is lowering volume as short sellers and bears flee the market. Eventually like with February 2000, there will be no volume or short covers to come. Hence, the long positions lose liquidity and go short themselves crashing the market ala March/April 2000. My guess is the hedgies after they figured they have shorted the market all they can, will sell off in droves piling up revenue they lost on the Real Estate bust. Nasty, nasty business.
It’s not enough to predict a recession (or hard landing). You have to predict when, or it’s of no value. Of course a recession will come , eventually. It’s like predicting a stock market correction. The professor will eventually be right that we will have that correction, but what if the market is us 30% before we have a 10-20% correction? I suspect that a lot of people posting here are not so much predicting a correction as hoping for one because they are not investors.
The fact is that U.S. likely is already deep in recession but it is kept hidden from the public. You can thank the gov’t use of the soft machine (news media) for it. Hiding a recession is also possible when the effects can be dissipated among about 300 million people. You CAN NOT gauge the economy by reading a common news source.
NR is completely wrong. no recession. but i see inflation. how can there be recession when oil is going higher. how can inflation not going high, when you have Fed ready to cut rate. and look commodity and gold to zigzag up. http://stockcharts.com/charts/candleglance.php?$TNX,$UST,$USD,$GOLD,$WTIC,$GTX|D|B14
Here’s a good book to read (not about the economy, though): ”Fog Facts : Searching for Truth in the Land of Spin” http://www.amazon.com/o/ASIN/1560257679/102-3116197-0219311?SubscriptionId=0RAFPGWETQZXMXGFNN02
What a bunch of nonsense. How could someone hide the fact that we are in a recession? Don’t you people live on this planet? Companies are at record profits, malls and restaurants are full. Lay-offs are scarce. Everyone I know is getting a raise and probably a bonus this year. Get a life! The Prof’s prediction is a product of his negative personality, nothing more.
Nouriel, what exactly you mean by a ‘Hard landing’? Frankly, I think it has become a cliche. I am not participating in the stock market partly because of I have been hearing of this hard landing stuff. Again, I hear people say if you are in the stock market for the long haul, then none of this corrections matter. It is very confusing indeed.
just keep your hard landing calls… I will not be sick of you!
Deflation follows Inflation just as surely as night follows day. It always has and it always will. Stock market crashes occur suddenly, like lightning striking on a clear summer day. It does not give the majority of traders time to react. In February the Dow dropped over 600 pts in less then 10 seconds. Buyers stand back. Stock loss limit orders become market orders when hit to be filled at the next available offering price. Curbs are hit. The market can change very quickly.
I have a sneaky feeling that if an asteriod was going to obliberate the planet next week, some Wall Street analyst and the Fed would proclaim the outlook for stocks the next 6 months looks just “peachy keen”
It’s been said that the falling dollar is going to strengthen exports Does anyone have any idea of what exports they are talking about? Our main export is the dollar, and the dollar in free-fall will soon put demand for the dollar in free-fall also. So what should we do with our ever-increasing supply of dollars if nobody outside the US wants our dollars? Why, buy stocks of course–we can all feel really good as the value of our stocks rapidly increases to astronomical levels.
nothing short of an asteroid is going to derail this market
Putting the Fed in charge of inflation is like putting the Witch of the West in charge of daycare for Dorothy. Pete, CA
Guest on 2007-10-09 21:13:51: “Lay-offs are scarce. Everyone I know is getting a raise and probably a bonus this year. Get a life!” Guest, congratulations on your nice life, but not everyone lives as high on the economic food chain as you apparently do. For example, some rural counties in the South that were dependent on manufacturing have lost 60 percent of their manufacturing jobs since 2000. Or take a look at Michigan. This is a growing problem outside the coastal centers of finance. Since 70 percent of GDP is consumption, and since even the low-on-the-food-chain people who you don’t know must buy food and fuel, this recession will largely come from the bottom up. Economic elites don’t pay much attention to the trickle-down people in flyover country, but those Wal-Mart shoppers and their wellbeing matter greatly to GDP. For example, look at this poll that came out today (the quote is from an Associated Press story): ”WASHINGTON – A growing number of people say the economy is the nation’s top problem, with the less educated among the most worried, an Associated Press-Ipsos poll showed Tuesday.” There are reasons for that. Many people in this country are hurting. In time, the distress is going to trickle up to people who deserve it a great deal more than those wage earners in flyover country.
Nouriel was pretty much spot on on the housing issue, as well as the consequent drag on the economy creating slower-growth. Inflation, dollar devaluation, federal spending (from where did the most recent jobs derive in the most recent jobs report), China, the ethanol/commodities boom, and the FIRE economy are counter-weights fueling growth. The macro-economy usually cycles in 3-8 year boom-bust waves, so one method is to invest based on a straight allocation or to hedge bets by considering macro factors and risk-benefit. I’ve been 90-10 stocks since 2001, and starting increasing bonds/cash/international slowly over the last year, and I sell a little bit to cash everytime the market hits a high. That’s me. I’ll point out that the 2001-2 tech and S&P suckered an awful lot of people I know who left their allocations to go all-in tech or all large growth reaching for the golden ring of the last move up. I’m retiring on my money, so I don’t want the golden ring, just a nice long ride. The unlucky going all in before the peak or those who bought on the dips on the way down may still be trying to get even. So leveraging up your investment based on your sense that the predicted recession is three months overdue risks a painful repeat of the 2001-2 experience all over. And remember recessions usually can only be defined with high confidence after the fact (or after their start, if severe), not before, like the Heisenberg uncertainty principle. Or like riding a ski lift blindfolded and with ear plugs in–you ride up and up, intending to sell at the top. Then suddenly you’re headed down, at an accelerating rate (or maybe in free fall) and eventually, you’ll be convinced what direction you’re heading. But you may not be able to stop your plunge conveniently to sell at your broker. Not suggesting you should do like me, just to evaluate the risks. Pigs get slaughtered, as they say. Even if you’re a bull expecting a blow-off, you probably need to carefully evaluate the bear case. I’m more confident shovelling money into the market after I’ve seen a long slope down, after valuations seem more reasonable, and after profits turn around. Pricing seems pretty dependent on best case, save maybe for large growth with large sales in international markets. That’s just me. I enjoy reading all the comments-been a lurker so far.
Guest wrote: “just keep your hard landing calls… I will not be sick of you! Guest also wrote: “NR is completely wrong. no recession. but i see inflation. how can there be recession when oil is going higher. how can inflation not going high, when you have Fed ready to cut rate. and look commodity and gold to zigzag up.” Guest is setting himself up to eat some doggedy-doo-dah-doody and a can of crow with his personal name written on the label. It must feel real good to sit back in your King Tut high chair, sheilded from the scrutiny and rebuke that someone of your character is deserving of. You must feel so superior in your ability to forecast market-movements; it must make your ego all bubbly and warm-feeling that Nouriel’s forecast has not yet verified. Well, sit back on your high-horse, King-Tut and enjoy the momentous ride downward as you suffer the punative damages incurred by the frictional forces of sudden market-descent. Do us all a favor, don’t be rude and stubborn in the midst of your fall, give us all a nice wave on your way down, maybe we will catch you on the next bull-market-that is if there is a next time…only time will tell. Economic time and the time to read the seasons are here in full force and the bears have lost-touch with the exotic, euphoria of the bull-market, ponzi-scheme, talking-heads, “lets spin straw into gold” cabal.” The guests and denizens of this lost-world and candy-land-game of jeapordy will eventually succumb to the weight of the manipulations they have imbibed from the evironmental-toxins that so patently seem to run skin-deep among this very confused and bedazzled species of sheep. Well, if Nouriel is wrong (and I highly doubt he will be) he has atleast been write with regard to His predictions of those factors that would cause the recession: A slowdown in consumer spending, capex-spending; A slowdown in job-growth (110 phony-thousand is still below population-growth trend and much lower than would be expected in an expanding economy); Slowdown in durable-goods orders, non-durable goods orders….etc and on and on and on goes the list, yet some guests just don’t seem to remember the data reports much pastr the day of release. The one question I have for the mockers-of-ill-content, is how can they expect the losses not to continue with those companies holding non-market modeled dept that continues to lose value per indexes such as the ABX.HE. These CDO’s and MBS’s will contunue to erode as long as the housing downturn continues and it has been shown that to even bring the home-price to rent ratios back to historical levels, prices would have to drop by atleast 50%. This bull-market wull soon dissipate and fall very short(or hard) of the delusionary-expectations that have been the hallmark of its illusionary, reason-to-rise. This quote I think is very applicable to Nouriel Roubini who has been the victom of underserved cynicism: “It is NOT the critic who counts, not the one who points out how the strong man stumbled or how the doer of deeds might have done them better. The credit belongs to the man who is actually in the arena who’s face is marred with sweat, dust and blood; who strives valiantly who errs and comes short again and again; who knows the great enthusiasm, the great devotion and spends himself in a worthy cause; who if he wins, knows the triumph of achievement and when if he fails at least fails while daring greatly, so that his place shall never be with those cold and timid souls who are afraid to risk victory nor defeat….” - The GREAT Theodore Roosevelt 26th President of the US, 1st American to win the Nobel Peace Prize, author of 34 Books, Naturalist that discovered 39 species of fauna & plant, Warrior, Awarded Congressional Medal of Honor , Environmentalist, Conservationist, Founder of 30 National Parks and the National Park System
I find Dr. Roubini’s commentary to be very insightful. I’ve seen some comments here in which he is called out for either being a fraud or, at the least, lacking insight. However, it is possible that we are already in recession, given that many economic indicators are either lagging or not always accurate. In particular, it is no small secret that government figures have not always been accurate, and the claim that these figures are deliberately inaccurate is not at all without justification. (The Fed no longer publishes M3 data. Anyone want to venture a guess as to why that is?) Recessions can take time to develop, and I’m sure those of you much more schooled than I can attest to this. Given that we have been in a massive credit bubble, it is reasonable to assume that its deflation will take some time. As for consumers, they’re the last to know and the last to realize. When the market’s flying, people may feel wealthier (the wealth effect) – or at least more confident. But if the markets sell off again, that confidence will erode as the true impact of the housing crash becomes more and more apparent and effects more and more people. Will it happen tomorrow? Likely not. But that’s not to say it won’t happen. Only time will tell. But, like many of you here, I do believe that the credit/debt problem in this country is a ticking bomb. I guess we’ll see how great the fallout is when it finally explodes.
Quiet educating to read this blog through the narrow tropism of Dr Roubini’s detractors. His comments are not addressing the equities markets but the macro components of economies please focus! Equities junkies no one prevents you from buying, as no one prevented you from purchasing CLO CMO CDO.
Interesting anonymous ‘guest’ posts with some claiming to be in the stock market amazingly. So much disagreement. Well gas will cost more as will heating oil. Trips to Europe will be too expensive. Car sales and home sales are down. The dollars you’re holding will be worth less. Anyway way you spin this or slice it or dice it, well it doesn’t add up to prosperity. Some of the gains in the stock market are timing and luck. Look for Hillary or Rudy 911 to lead us to the Promised Land. The biased media is killing Ron Paul’s chances. It’s time to decouple or drop out from U.S. politics and the corrupted stock market. Buy less. Bail out. Build a house with declining dollars if you can. Walk away from bad RE debts. Keep the ones paying for themselves. The system is going to go where the limits of global corporate capitalism will take it. A for-profit system that is corrupted has contradictions that are insoluble within the rules and lawlessness of the present arrangements. We are simply being administered. The middle class is completely disposable as is our whole society. Wake up to reality. get past the doctored numbers and propaganda! It’s going to great losses and setbacks for the majority probably. Go underground. Get real. Jobs will continue to decline in the U.S. This isn’t bearish negativity; this is how the system works because the rules are compromised by power and it’s not a level playing field. There’s no hope for change. Nouriel will keep teaching and traders will keep trading because they are gamblers…probably many are addictive gamblers. But the House has the advantage every time and wins are always followed by greater losses. Even Cramer’s picks if followed over time are lousy. Spin the wheel. Follow your leaders. Support ethnic cleansing. Fill ‘er up!
The US is in a recession. Put everything (Indices) in perspective to the Euro or the Pound Sterling. Either the dollar strengthens and stocks go down or the dollar plummets and stocks go up. Monetary inflation with credit is exploding. The monetary base might be ok but credit growth is still firing on all cylinders. So what will happen? Well my guess is that the next cpi and ppi numbers are going to be somewhat bad. Don´t forget core cpi/ppi was up .2% and cpi/ppi was down because of oil prices lower now with oil back up and the dollar down that will fire inflationary prices up. We are experiencing a growth in prices here in Europe and the Euro is strong (relatively of course). So if we experience higher prices, then prices in the dollar zone with a plummeting dollar can´t be falling or somebody has just reinvented the theory of relativity. With the US consumer dying not only with too much debt and tapped out in equity he is going to get killed by inflationary pressures which have been built up over the past years (deficits). The birth/death model managed to hide the truth on the labor market but I can tell you, people here in Europe are starting to question the US data and it´s integrity. Oil and Stocks are high because of loose credit conditions. The FED has lost control of credit (if it ever had it) and prices are roaring. That is what is going to kill the bond market and who ever has simple understanding of economics knows that in a credit monetary system the bond market is everything. Yields will have to soar to make stocks come down. That process can take some time, it seems. Can the world decouple? One of the key elements is the pricing of Oil and Commodities in a currency. In the past it was the dollar. That meant that if the US did not drive a deficit, the ability of emerging markets to by commodities went down because of a scarce dollar. Since it seems that this is changing we might be facing a new environment now. The Euro and Yen (and Won) are becoming new commodity currencies. This changes everything. Does that mean the world will decouple. Well at least we could conclude that a US recession will not be as bad as in the past. That would also mean that the US would not necessarily see a falling oil price if the US went into a recession. My problem though are the imbalances. That is a problem. Chinas economy is out of balance as much as the US economy is out of balance. If there ever will be a decoupling then with economies which are half way well balanced. That might be the reason why the Euro is performing well, relative to other currencies. I would expect Japan, Switzerland, Singapore, India and a couple of others to do well.
http://www.handelsblatt.com/News/Vorsorge-Anlage/Anlagestrategie/_pv/_p/200729/_t/ft/_b/1334751/default.aspx/kruegerrand-im-kofferraum.html This is an article from Germany´s number one economic newspaper. It is something like the WSJ and the FT. It states that PHYSICAL Gold is being bought like crazy. Workers with their helmets are walking in Gold stores and directly buying Gold. One of the reasons stated by these people: Lack of trust in the integrity of paper currencies! By the way. This was frontpage news.
Here is a very interesting tidbit about how the credit default swap market is driving the plunge in underlying asset prices: In a letter to clients last week, John Devaney, chief executive of United Capital Markets, a troubled broker-dealer and hedge fund manager in the asset-backed securities market, said: “Liquidity is horrible and prices are in the range of five to 50 points apart sometimes just hours or days apart.” Mr Devaney added that the existence of the nascent derivatives market for such securities, in the form of the ABX index, had exacerbated the sell-off and uncertainty over true valuations. “The CDS market and its size has contributed greatly to the volatility. As prices dropped, there were – and still are – those forced to sell, taking off leverage.” http://www.ft.com/cms/s/0/cb1e9288-769c-11dc-ad83 0000779fd2ac.html Could we see the CDS market create a plunge in the stock market (just like happened in the MBS market)? Bernard
AFFG, when the FOMC admits they cut rates to bail out the big banks from their own greed, little wonder why. Below is an excerpt from yesterday’s FOMC minutes. There should be nothing off balance sheet, nothing. They set up these vehicles to get around capital requirements and now when they run into trouble, the fed bails them out. I still cannot believe they were this up front and put this into their minutes and that it is getting such little press. Moral Hazard indeed. ”Although financial markets were expected to stabilize over time, participants judged that credit markets were likely to restrain economic growth in the period ahead. Given existing commitments to customers and the increased resistance of investors to purchasing some securitized products, banks might need to take a large volume of assets onto their balance sheets over coming weeks, including leveraged loans, asset-backed commercial paper, and some types of mortgages. Banks’ concerns about the implications of rapid growth in their balance sheets for their capital ratios and for their liquidity, as well as the recent deterioration in various term funding markets, might well lead banks to tighten the availability of credit to households and firms.”
Prof Roubini’s analysis is sound and clear. Someone with a little understanding of economics should be able to see that. However, if someone is looking at this analysis as a tool to predict market movements- long or short, doesnt matter- that person is in the wrong place. Sound economic analysis is not sufficient to predict the market anymore, when there are too many external factors. It has become a chaotic environment -as in chaos theory- for now. I have been reading Professor’s analysis for a while now and think that a severe recession is very probable in the mid-term at this point. However, I am still long in the market, as I know this ride will continue for a while. Proffesor’s analysis urged me to create a flexible investment strategy. I would urge every investor to stop trying to make sense of the market and make the most of it, at the same time to keep in his/her mind that a recession is not far off.
Price of balloons will go up…price of soda will go up…the dreaded stagflation may just be around the corner… RADNOR, PA – October 10, 2007 – Airgas, Inc. (NYSE:ARG) today announced that beginning December 1, 2007, or as contracts permit, its operating units will increase prices on bulk and packaged gases. Prices will increase, on average, as follows: - 20 – 30% for helium - 10 – 15% for argon - 8 – 10% for all other bulk atmospheric gases, and packaged industrial, specialty, and medical gases. Airgas also will raise rental rates for cylinders and bulk tanks and other delivery and service charges up to 15%.
Guest: “Companies are at record profits” Based on what? Analyst estimates? Sanbagged corporate forecasts? Do the extrapolation on the numbers and see what you find. Lets take Costco for example, The report earnings today of .83/shr vs .75/shr last year same q. Things aren’t what they appear to be. Per share numbers are a joke, they are meaningless because when these numbers are forecast I can pretty much guarantee that they dont factor in 5% buyback. Yes there is increased value, but not in the way that most would perceive. So yes they meet “expectattions”, but not without some trickery. last year same q 355.6m .75/shr = 474133333m shares os current quarter 372.4m .83/shr = 448674698m shares os
@Anonymous on 2007-10-10 09:05:36, yep … and Valero just announced that margins in the refinery business is being squeezed by rising Oil prices. Chevron and Alcoa only met expectation by selling assets and declaring the capital gains as profits. Else everything was dropping … Earnings are just starting to get under pressure.
AFFG: “The birth/death model managed to hide the truth on the labor market but I can tell you, people here in Europe are starting to question the US data and it´s integrity. “ So are a lot of Americans. The data coming out of Washington are becoming a disgrace to our country. For an alternative view of US economic data see John Williams’ site at this link: http://www.shadowstats.com/cgi-bin/sgs? For example, this site shows CPI running at 5.5%, and not 2%. Some people feel that numbers on this site are too pessimistic, but I tend to feel the real data are probably a lot closer to John Williams’ estimates than the Gov’t figures. Pete, CA
The way I see it, Nouriel is just letting us know that under normal business rules – we are in trouble. Reports (especially government ones) can be misleading because they could run the report before all the reporting agencies have input their data. Or maybe they accidentally (on purpose) make a mistake and leave out an important piece of data. Secondly – there are enough people/banks/government agencies? with enough money to make things happen or to make them look like they are happening. But if you were running a business and things are the way they are – things would fail very quickly in our environment. (In my opinion). So look a little further and see who’s putting up the money to make things happen. I don’t know how to find that out (yet) – but it would really be nice to know what happens just before all the rises in the stock market (and which stocks are being affected).
Those who point out that GDP has been up YOY, need to renormalize. By my reckoning, the GDP normalized by the dollar index (DX on ino.com, USD on stockcharts) indicates that the USA has been in recession since December 2005, with a negative GDP YOY. Nouriel has been closest to the truth in identifying the grinding recession that we are in. We are being fooled by assuming that everything valued in dollars or renormalized by fake inflation figures is showing growth. The growth is in terms of dollars. The dollars are falling faster than the fake growth. This is normally called stagflation. We have a stagflationary recession with the crush grinding toward a stagflationary depression. PrintFaster
Consumers appear to be “on the ropes.” This is a broad generalization, but probably a useful characterization. The price of a gallon of diesel fuel is in many places, at or beyond that of September 2005–during Katrina. Many goods transported via tractor-trailer are therefore becoming more expensive, at least nominally. Year over year the price of a gallon of diesel fuel has risen regionally about $0.50. Wages are stagnant or falling in real terms, while the prices of imported goods are rising.
A glimps into the national future… *The Florida Legislature is expected to vote this Friday (Oct. 12) on a deal to dig itself out of a $1 billion hole through cuts in education, health care and courts. *Michigan was pushed to the brinks of a statewide government shutdown because it first had to erase an $800 million deficit for its current fiscal year before it could pass a new budget for an Oct. 1 deadline. The new package relies on hikes in the personal income and sales tax and new taxes on an array of services. *Maryland needs to bridge a looming $1.7 billion deficit. Gov. Martin O’Malley (D) has pitched bumping up personal income, sales and tobacco taxes and relying on slot-machine gambling to gin up $550 million for the state. *Both Arizona and Virginia are looking at more than $600 million shortfalls in their current two-year budgets. Layoffs, hiring freezes and tapping rainy day funds are among ideas under consideration.
Politicians piss away your hard earned dollars on earmarks and favors to friend/big contributors and then have the gaul to come back and demand more form you…but you know what is more appauling…we put up with it year after year after year. Fool me once shame on you, fool me twice, shame on me…
Deficits are coming home to roost at a municipal, state and Federal level. Consumers will sell their children to slavery in order to keep themselves able to shop.
While personal income taxes are the largest single source of state tax revenue, the flow of money from the sales tax is more closely watched since its fluctuations are viewed as an early indicator of the health of the nation’s economy. The latest figures show that the growth in sales tax for the second quarter was one of the lowest in four years at 6.1 percent and “matched rates last seen as the nation was emerging from the last recession,” according to the Nelson A. Rockefeller Institute of Government’s state revenue report.
Well I think I am officially a bull now. They have beaten me into submission. I am only a bull because my personal trading account which was not very large is all gone now from loosing on shorts. Now all I have left are even smaller retirement accounts which can only be invested long. My silly belief that markets operate somewhat efficiently and free is also completely gone. Now I see that the Fed will just continue to add money so that there is now place other than stocks to put it. No matter how bad the economy is they will go up. Thinking about the “Greenspan Put”, it is absurd. All it means is that any bad news can be perceived as goods news to stocks. There is absolutely no reason or news that drags stock down significantly. Let’s face it stocks are now government insured risk free assets.
To those perma-bull, ponzi players who watch CNBC all day who claim the Professor’s comments are useless in predicting the market, shouting for timing a recession, I suspect you haven’t done your homework on neither business cycles, macroeconomics or technical aspects of trading. Timing is impossible in irrational markets, or in any market for that matter. If you know of a model that reliably predicts recessions or cycle peaks, please let me know. If you want to time your trades it is your own responsibility to develop and follow a trading strategy that would stop you out when the market turns. Apart from that, the best you can do is play the market as it is. As for being in a recession or not, I suspect we’re already there. It usually takes more than 6 months from the beginning of a recession for the statistics to actually confirm a recession has hit. The data are in your face.
Guys listen up, Please !!! DOW is down 140….might go down 60 points more today…. establish shorts. wrong time to be a bull.
Yeah and if it continues the Fed and the PPT will just flush more money into it.
Dr. R, et al The issue of the timing of the recession, which is long overdue, as the stock crash of 2000-01 was a mini blip due to Greenspans slash and print action, is again being postponed as long as possible. The current “credit crisis” is not an issue of interest rates for cost of funds, but solvency issues being swept under the rug to be hidden as long as possible. The Japanese experience with their credit bubble bust had stocks and real estate down over several years about 75%. The PTB now running the PPT for the equities markets will do anything, and i mean anything to prevent the equities going down as long as possible. An article out today on real estate forclosures in D.C. area quoted a realtor saying that auction vs listing price was down 72%. The time lag for foreclosures in the San Diego area is well documented in this piece with a great graph. Last line about its about to get ugly may be an understatement. Time rate of change accelerating UP very well. Last line is spot on. Ugly coming soon. http://calculatedrisk.blogspot.com/2007/10/reo-auction-in-san-diego.html Stick to your reality guns. Ursel Doran
Hey Nick, who cares, stocks at all time highs!! By Nick Godt Last Update: 2:29 PM ET Oct 10, 2007Print Subscribe to RSS Disable Live Quotes NEW YORK (MarketWatch) Third-quarter earnings of S&P 500 companies have “a good chance” of turning negative for the first time in five years on Thursday, after factoring in Wednesday’s profit warnings from a slew of energy stocks, Thomson Financial said. “There’s a good chance that we’ll go negative tomorrow,” said John Butters, analyst at Thomson Financial.
another miraculous trunaround in stocks this afternoon…
By Ruth Mantell, MarketWatch Last Update: 3:02 PM ET Oct 10, WASHINGTON (MarketWatch) About 1 in 5 Americans in working families can’t afford basic needs, and many are scraping to get by on insufficient income and government aid, policy researchers conclude in a report released Wednesday. Many of these workers earn too much to qualify for “work supports” such as Medicaid and food stamps, while their employer-provided health insurance doesn’t cover enough of their basic medical costs, according to the report by the Center for Economic and Policy Research and the Center for Social Policy at the University of Massachusetts. ”We no longer live in a world where having a job means you’re automatically able to make ends meet,” said Heather Boushey, co-author of the report. “Our work-support policies need to be updated to support the millions of families with earners in bad jobs.”
Well, those who don’t believe in the PPT, you have had a front row seat today to their incredible control over the futures markets and thus the indexes. Stocks need to be removed from the official Leading Economic Indicator (LEI) because of this manipulation.
For all of you out there scratching your head as you watch this stock market defy gravity—here’s the reason why: 1) If 70% of all trading in the stock market is now conducted by investment banks and hedge funds and…. 2) If the balance sheets of investment banks and hedge funds are financed mostly with borrowed money 3) Then it logically stands to reason that the entire stock market is currently being propped up where it is right now simply because the investment banks and hedge funds have ACCESS TO BORROWED MONEY FROM THE CREDIT MARKET. I have estimated that the investment banks and hedge funds have collectively added $4.5 trillion in new debt during the past 4 years. This leads to the next question (which would determine the fate of the stock market): Under what circumstances would the credit market begin to sharply curtail its lending to investment banks and hedge funds? Would a US dollar meltdown (foreign capital flight) cause this to happen?
From Minyanville today, nicely written: http://www.minyanville.com/articles/index.php?a=14418
You go Nouriel!! Cargo Decline Portends Consumer Weakness Mike Mish Shedlock Oct 10, 2007 10:00 am The slump in oceangoing imports unloaded at the 10 largest U.S. container ports in August was the first drop since Global Insight began its monthly Port Tracker report in 2005. The number stunned some port watchers. “When I first saw these numbers, I called the researchers and asked them if they had left a column out of the spreadsheet. I thought it was a typo,” said Craig Shearman, vice president of the National Retail Federation, which pays Global Insight to conduct the trade research.
Nice article from minyanville, interesting comments on the Canadian government taking steps to protect themselves from foreign ownership. This is a trend that is only increasing and proberbly only going to increase. We now have the rise of these asian and middle eastern soverign wealth funds armed to the teeth with exports surplus and petro dollars. large cap resource companies are becoming one of the targets of the chinese, there is talk that they are buying up large holdings in BHP and Rio Tinto and why not it certainly makes sense for them. Can we really call this fair when these same countries have such free access to western markets whilst at the same time they heavily protect their own companies? Can you imagine if the US, German or British government started buying up shares in companies of China, do you think this would be allowed ?
4:00pm 10/10/2007 September same-store sales, or sales at stores open at least one year, fell 2.9%. Analysts polled by Thomson Financial, on average, expected comparable store sales to fall 4%. Total sales for the five-week period ended Oct. 6 were down 6.9% to $59.3 million, the City of Industry, Calif., mall-based specialty retailer said.
Evidence is starting to pile up that the consumer may be toast! Consumer spending is 2/3 rds of GDP.
The market can stay irrational longer than you can stay solvent.
yes, there must not be any problems out there… stocks are near highs… it is so ironic that all of the efforts of nearly the entire financial community to analyze stocks based on fundamentals are completely frivolous and irrelevant. analysts, managers, media all strung along by the planners like little well-paid puppets government policy / planners intentions are the only relevant indicators. last summer legislation was passed to facilitate automatic enrollment in 401K plans when people were hired, now Hillary having government money funneled into market in matching proposal, of course Ben and Hank outright buying futures to support the “market”, President calling White House Economic Forum’s when equities are down a few % points, constant murmur of social security running out spreading fear to juice 401K contributions, … what a complete and utter farce of a “market” so, in advance of the potential super rally that still MAY have legs, it will be due to “multiple expansion” got it ? time for me to go play with my pet unicorn
Dr. R., et al Andros does his usual excellent job of cutting through the mist of the markets, with has a great insight for the corporate profits issue, and the tiny tiny tiny portion of the sub prime write offs for the bankster / brokers. I suggest they should / will creat a Paris Club mechanism for mortgages where the defaulted garbage can be parked without taking the write off. You heard it here first, and indeed the beginnings are already afoot. http://www.financialsense.com/fsu/editorials/andros/2007/1010.html
Consumer weakness can be seen in the M2-M1 – which indicates savings are increasing (YoY). Which conversely shows spending is down. You can watch these figures with only a ten day lag time.
Also, GDP growth is 1.7% YoY – or – 0.3% from last quarter annualised. If you believe the Fed figures then you are close to zero growth. If you believe figures from ShadowStats using the pre-clinton cacluation method then you are already in negative figures.
Nouriel is right four weeks in a year. Nouriel is No-Real when it comes to markets. He is an economist who tried to go for the glory but fell flat. He is consistently making outrageous predictions to attract attention, but all he does is to gather some fool following. He is the Tom Friedman of economics. Nouriel is never right.
@Bernard, ”Under what circumstances would the credit market begin to sharply curtail its lending to investment banks and hedge funds? “ Yes my friend … congrats … you are making my point. The bond market is the issue. When that takes a hit, the stockmarket will come down. Inflation fears will take care of that.
You all should get a copy of N.N. Taleb’s enlightening book “The Black Swan” paying particular attention to the section on predictions. As James Garner said in a segment of “The Rockford Files” many years back…. ”You can fool all of the people some of the time, and some of the people all of the time, and those are pretty good odds.
“Oct. 10 (Bloomberg) — Morgan Stanley, the world’s second- biggest securities firm, said its quantitative strategy traders lost $390 million during a single day in August as their computer models failed to account for “widespread” investor selling.” Keywords: models – failed So much for extremely expensive, consensual (a nice warm word) and modern “economist adopted” “MODELS” to guide the hero in his/her daily quest in ex nihilo wealth creation. Ha! ”Never fall in love with your model”. Basic tenet of applied intelligence. PeterJB
Quote by Realitycheck:”Nouriel is right four weeks in a year. Nouriel is No-Real when it comes to markets. He is an economist who tried to go for the glory but fell flat. He is consistently making outrageous predictions to attract attention, but all he does is to gather some fool following. He is the Tom Friedman of economics. Nouriel is never right.” Stupid and unbacked assertion that makes me want to either vomit at the mere consideration of even reflecting upon such a baseless statement for more than a few seconds, or cry in utter angst and disarray as a purging mechanism to free my nerves from the shock and awe of the realization that people like you are a force that runs counter to all know laws of reason and common-sense. Give an example of where and when Nouriel Roubini has been wrong. His recession timing is of no great import in the context of the greater macro-economic variables which he has adeptly deconstructed with near surgical precision. The economy is doing great if you believe that the stock-market is not disconnected rationaly and realistically from the world of hard-core macro-data.
Just an observation..Today at a Home Depot here in Naples Florida I was approached by several men (US citizens and contractors) looking for work. You can count South Florida out of any formula for consumer spending. We are one of the largest states in the union. California is down for the count and Texas is knee deep in the morass. Life may be great and all the people are wonderful where you are but life’s getting very uncomfortable in a lot of places. Recession seems to be very objective term.
Some of these comments remind me of a hen house of roosters. The brains are also very small. We finally have someone of intelligence sharing their insight with the public and the web sight gets slammed with stupidity. I undestand now why the intelligent few isolate themselves form the general public. Some of these quest comments are so ignorant its astounding they can take themselves seriously!!And some of them actually think the stock market is an indicator of the state of economy. What does a trader call a trade. A play!! Was the tech stock boom any hint?? Not only is this country headed for recession its already in a recession. Wake up!! Try reading something other than your local newspaper. And if you think CNBC will enlighten you than you are naive. Ignorance is blissfull when mixed with testosterone. We need more war so we can once again hear ourselves think above the rattling of plastic swords. PG,patience gone!!
Quote by PG:”And some of them actually think the stock market is an indicator of the state of economy. What does a trader call a trade. A play!! Was the tech stock boom any hint?? This is indeed a conundrum, the ignorance that is at the heart of those who have been led astray by the machinations of a prometheon spin-machine,relentlessly pursuing their objects of deceit with reckless-abandon. I still cannot see their logic as they equally cannot see my understanding of their illogic; this perceptual dislocation will be the bane of their irrational, market-exuberance.
Indeed, Indeed. Thier grotesque hyperbole will be their ultimate downfall. MaunderMin you are a scholar of the highest caliber, a student of the oft fabeled Austrian Economics vein of though you must surely be.
To those of you who think the figures haven’t been fooled with – check again. Last year when I was losing my house mostly because the inventory in Sacramento, Ca. is so huge and also because of price declines – Zillow did show a reduced value for my home. All the people who came and looked at my home all had cash and they were not looking for an ok deal – they were looking for a GREAT deal (which meant they all wanted me to pay for them to take it off my hands – or for the Bank to give them a good deal). At that time they all wanted to pay the low end of the Zillow value range minus the realtors fees. At this time the same old people are still trying to get a good deal from the Bank – and so far the Bank won’t go for a Short Sale so at some point it will be auctioned off or sold by the Bank. Last time I checked homes for sale in that area – the prices have not gone anywhere but down even more. However, according to Zillow – my old house is now worth $30,000 more than it was last winter. As a matter of fact – it is now worth more than the house next door which was always worth more than mine. But nobody will buy it until it is discounted by about $80,000 or more from that new price Zillow is showing. So – I ask you —– WHAT TRUTH????? California is going to get hit and get hit hard. Government Budgets are always figured ahead of time and since they had windfall property taxes in the last few years – you know the budget is still counting on money they are not going to get. They need to downsize some of the excess management – but most likely it will be the workers. They always threaten the Fire Dept. and Health Services first (because it hurts the Taxpayers the most to lose those services)and they may very well raise the taxes. There are many many people getting aid in Calif.- such as Low Income Housing, Welfare, Medi-Cal etc. etc. and many of them (according to reports I have seen) are illegal aliens (possibly 40%). How do you think that is going to go down with the new homeless people who have been paying for the taxes that pay the benefits for those people – when they themselves get turned down when they need it? When the s— hits the fan here – it will most likely affect at least one other State nearby – not to mention what will happen to the Federal Government – when Calif. can’t cough up all the money they’re used to getting. Nouriel is more right than you may think. Yes the stock market might play games and make him look like he’s making bad claims – but the reality of what he is saying is true. Things are starting to give – down here on us little people. We shall see what we shall see – but it will get UGLY.
Professor Roubini is right. The recession has already started. Nobody knows how far it will go. Remember the Asian crisis of 1997-1998. When it started, nobody knew it would be so terrible: governments fell, capital was destroyed, the population suffered. Economic crisis in capitalism is inevitable.
“The recession has already started.” It has beem said that one year before… Do you bears have any more new ideas?
You are doing great jobs. Without you, how can the bulls celebrate?
There is no way the northeast is in recession. Everything from DC to Boston is BOOMING! Some regions of the country may be in recession but I seriously doubt that the country as a whole is in recession. There is always a part of the country that is suffering no matter how well the rest of the country is doing. If you live in an area with a manufacturing base you are on a macro downtrend.
Very pleased to know that here is a piece of land for the hard landing callers.
I couldn’t agree more that the economy is very strong here in New England. If there is any problem in the horizon it is far more likely to be inflation than recession.
Do you hard landing callers really understand the meaning of recession? Just cry for recession is not making sense!
yes they are crying…
The best thing for Americans would be to take as much as possible of their money out of the bank accounts. Don’t expect to see long queues in front of the banks in the U.S., however, as the national savings rate was already low. Even if the situation deteriorated many people would have nothing to take out.
Guest wrote:”There is no way the northeast is in recession. Everything from DC to Boston is BOOMING! Some regions of the country may be in recession but I seriously doubt that the country as a whole is in recession. There is always a part of the country that is suffering no matter how well the rest of the country is doing. If you live in an area with a manufacturing base you are on a macro downtrend.” Now that I know that there couldn’t possibly be a recession- because there is always a part of the country that is suffering no matter how well the rest of the country is doing-I’m considering changing my perspective to one weighted more toward the euphoric, BULL-CAMP. That’s for those very consoling words guest; I’m now a timid bear moving slowly toward the cattle-ranch. I’ll see you on the other side.
The economy is doing great. The data speaks for itself as well as the commentary from people who are in the know: CEO Bill Zollars. (emphasis added) Taken from calculated risk: Fortune: How is the holiday season shaping up? Zollars: We’ve got a window now of about ten weeks or so where we should really see a big increase in shipment volumes as we get ready for Christmas. We have not seen that, and that’s a concern. Last year’s inventory buildup for Christmas was lower than historical standards, and the season ended up okay – not terrible. This year you have some easy comparisons, so you would expect to see more of a preholiday inventory buildup, but we have not seen that. Maybe it’s coming later. Maybe it’s not coming. … Fortune: Getting back to the economy, could things get worse before they get better? Zollars: We have not felt the bottom yet. I’m still a bit nervous. Right now, if things continue to deteriorate, I’m worried we may head into a recession. [I feel that] there is a one-in-three chance of a recession. We are prepared for the worst and hoping for the best. More Housing woes and blatent signs that nouriel’s call for continued deteriation in the housing market is undeniable. How many more revisions will NAR make? Here’s the latest data from NAR that underscores nouriel’s prescient call on the housing downtrend: The comedians at the National Association of Realtors (NAR) revised down their forecast today for existing home sales in 2007 again. Their current forecast is for sales to be 5.78 million in 2007, down for 5.92 million last month. Compare this to their original forecast from Dec ’06 of 6.4 million units in 2007. (My forecast was for existing home sales to be between 5.6 and 5.8 million units). The NAR forecast is still too high, even after eight straight months of negative revisions. Luckily for the NAR, they still have two more downward revisions to go. More bad-news-bears: Alcoa, the first member of the Dow average to report results, reported that their sales had declined by 3.2%. Chevron intimated that third-quarter net income was “significantly below” last quarter’s record period. Boeing has announced the delay of their 787 Dreamliner deliveries from May 2008 to the end of 2008. Goldman sacks confessional: Goldman reveals effect of credit squeeze By Ben White in New York Published: October 11 2007 00:51 | Last updated: October 11 2007 00:51 Morgan Stanley disclosed that its quantitative strategies traders lost $390m (£195m) in a single day in August because of what the bank on Wednesday said was widespread selling by investors. The disclosure helped explain the $480m quarterly loss in quantitative trading that Morgan Stanley reported last month and highlighted how volatile the markets were in the third quarter as the credit squeeze spread and unnerved investors around the world. Morgan Stanley reported an overall 7 per cent fall in third-quarter profits. The disclosure came as Goldman Sachs said it lost more than $100m on six trading days during the quarter but earned more than $100m on 23 days. The information came from the banks’ quarterly filings with the Securities and Exchange Commission. Also: Strip-Mall Vacancies Hit 7.4% More confessionals from Goldman: Goldman CDO, CLO Holdings Fall 53 Percent in Quarter And Nouriel’s excellent commentary: “110K jobs were created in September and the July and August figures were revised upward. So is it all rosy for the job market? Not really for several reasons First, the August revision (+93k) was almost only goverment job which went from -28K to +57K (a +85K revision).
So the stock markets are rallying, the financial markets do not represent a complete global economy. You can print money and throw it into the markets to keep asset prices from falling; the stock market rallies because investors believe the worst is over, it’s impulsive based buying. No wonder their are investors locking in put options for a possible large decline. The trick is can the fed keep the housing sector from falling deeper into a recession, to do this they (the fed) need also to ensure that their is a rise in housing asset value. Can they do this? Only by throwing more money into the economy. Inflationary conditions and recession can hand in hand. America is heading for a recession.
the figures by the government are fake, and do not have anything to do with reality. Costs here in arizona have gone up alot. of course the gov’t figures dont include costs of buying a house even though 70% of the people live in houses, 30% in apartments or rent. they do what the house would rent for, and rents are much higher in phoenix than a few years ago. i pay $850/ month for a studio with cable, internet, electric. i used to pay about $650 and i had a 1 bedroom and nicer place, just a year or year and 1/2 ago. This is a basic place not in a bad area. gas of course is much more and i just read food is up 15% in arizona this year. I spend everything i earn now just to get buy, i never in my life have ever been in this position. i’m moving out of phoenix and may just go overseas since i have sizable savings. so, it is not a surprize to me that people are having a hard time making ends meet. stocks will rally a little longer, they did in 2001. plus, i have heard there is lots of cash sitting around so i shorted a little during the meltdown, but got out before the fed cut as i knew the market could move against me. still looking to short, but i’m waiting for more highs first to draw in the greedy longs! longs will get slaughtered just like in 2002!
forgot too add the word “severe” in regards to a US recession.
AG wrote:”Inflationary conditions and recession can hand in hand. America is heading for a recession.” Exactly, as the U.S dollar loses its purchasing power there will be a transfer of wealth to those countries that experience currency appreciation; so in effect demand will shift to said countries as U.S demand “falls off the roof.” This increase in purchasing power will allow those nations with positive savings rates to expand their capital stock and as a result labour and output will also increase. Imports will become extremely expensive for the strapped, tapped, and on the edge American consumer as He suffers the brutal consequences of true inflationary pressures, coupled with output that is reflective of a severe contractionary phase of the business cycle. Let the purging of the excesses begin.
As for those accusing us “bears” for calling a recession where there is none, I will challenge anyone to come up with a better definition of recession being “2 quarters of negative GDP growth marked in terms of an aggregate of currencies”. If so, I will correct my previous remark that stated we were in recession since late 2005. That should be “a recession since Q2 2006″. What we need to worry about is recession turning into a depression. I would define that as a decrease in GDP of 15% as measured in an aggregate of world currencies. This definition would include both the classic US depression of the 30s, and the hyperinflation of Weimar. Both arrived at the same place: depression of GDP. One did it with strong currency, the other did it with weak currency. Our Fed seems to have learned the lesson of the Great Depression: Make the next one an inflationary depression. The latter is far more politically acceptable. That is until the money comes out in wheelbarrows, or we get an Argentine style grinding inflation with everyone shipping their assets out of the country. So yes we are in an inflationary recession, and with that comes a booming stock market. At least for a while. Print Faster
If you are making love with “hard landing calling”, just do it. I just make fun with making money. Yes, USD may becime a piece of shit. I have not been care since such experts told me such a great finding a few year before.
Nouriel Roubini, did you students ask you what is recession?
I have been lurking for a while but I think its time I made a comment. The symptoms the US economy is showing is not unique. Over the course of economic history, there has never been a case where a final deflation of an asset bubble did not result in a recession or worse a depression. In the US, the case is particularly acute since this housing bubble appeared post the stock bubble of the late 90s/early 2000s. In essence, it is the cumulative effect of multiple bubbles. Without savings and with the kind of leverage the ordinary American has at the moment, there is very little to prevent a severe recession, even with massive rate cuts from the Fed. We have seen similar in Asia before in the the 90s and throughout economic history. The idea is to make the recession as short as possible. This would require pain and loss. In other words, bite the bullet. From a clean base, the economy will emerge stronger and better for future growth. You have had your party. Now its time to pay the price of the excesses. Japan did not do that, and to this day, they are still paying the price of the mistake of not taking the pain in 1990. That is 17years of economic malaise. Stock markets are emotional creatures. It takes a while for reality to bite. But when it does, it will be dramatic and it will be painful. It has happened many times before in history. And if human beings are anything, they are very very predictable. History ALWAYS repeats itself. Good luck, Americans.. I’ll be worrying over here about the asset bubbles we have in Asia.
Some good thoughts there, keep them coming – and I don’t mean the short post abuse. I have a question. If the USA is stupid enough to start yet another hole in which to pour money – say a war with Iran. How will that affect things? War can be a economic benefit and give GDP a real boost for a while right? But who pays for it when you get stuck in country and can’t get out (aka. Iraq) but the bills keep coming? Will it delay any recession?
@Ralph on 2007-10-11 02:54:46, it would accelerate the decline substantially. A war against Iran would mean more money drained from the bond market at a time when Oil and Gold prices skyrocket and inflation fears pop up out of nowhere and people start selling bonds and make yields go up. That then will kill the economy.
If the recession can be delayed by one month, one year, 5 years or 10 years…, it is just fine! thanks Geroge Bush. He is the real god of our time!
http://www.dailyreckoning.com/Writers/Mogambo/DREssays/MG101007.html It´s often worth reading articles from the Mogambo Guru. He makes depressing news fairly funny: ”Being naturally paranoid and distrustful, I vote for corruption every time, because the history of the world is clear; the amount of corruption at the end of long booms is always at unbelievable levels. And then Jeremy Grant at the Financial Times hears us talking about corruption and volunteers that, “The number of cases involving manipulation and false price reporting in commodity and commodity futures markets caught by U.S. regulators has reached record levels in the past 12 months. The Commodity Futures Trading Commission, which oversees such markets, yesterday revealed it had collected a record $540m in civil penalties, restitution and disgorgement (the return of ill-gotten gains made as a result of a fraud) from cases involving fraud, manipulation and other misconduct. It said this was a record.” Hahaha! A record! It’s just history repeating itself, as corruption is at the maximum! The good news is that when the regulators get around to looking at the staggering manipulation in the gold and silver markets, they could probably balance the federal budget for years to come if they forced the manipulators to “disgorge” their “ill-gotten gains” as a result of the price-manipulating frauds they committed for the last few decades! [...] So I decide to celebrate Ron Paul winning the Presidency, and the fact that this shows real intelligence in Americans, with a good old-fashioned, “Lost Weekend”, booze-guzzling party. But just as I knocked a few drinks back in one long pull on the bottle, just when I think people are getting smarter, here comes Frederic Mishkin, who is one of the new guys at the Federal Reserve who apparently have to say stupid things as part of the secret Federal Reserve initiation process (probably getting their brains knocked out by spanking, and then chanting “Thank you sir! May I have another?” a la Animal House). For example, unbelievably, Mr. Mishkin is reported to have remarked that, “Gold is not a particularly reliable indicator of inflation,” which he thinks somehow handily dispenses with that particular piece of evidence, especially since gold is roaring along at over 30% a year and thus has been acting like price inflation is roaring at over 10% a year (just like John Williams at ShadowStats.com calculates), which I am sure is probably true because the M3 money supply (monetary inflation) has been growing at about 15% a year, and price inflation is caused by monetary inflation, and in roughly the same degree. It’s that simple! So even as I am feeling the initial effects of greedily chugging down some powerful alcoholic beverages start to kick in, Mr. Mishkin is rendered comically beyond laughable when he says that not only has inflation in prices come DOWN, but that, “Inflation has come down in the old-fashioned way. Tighter monetary policy and a commitment to price stability by central banks throughout the world have led to lower inflation and an anchoring of inflation expectations.” Hahahaha! [...] If you look at my face, you will notice that I am having a hard time not breaking into a big, loud belly laugh of Maximum Mogambo Mirth (MMM) as I say, “And I am supposed to believe that the Fed will NOT create the money and credit to allow the government to borrow all of this $900 billion more, and then even more when that runs out in about two years (extrapolating the long-term trend)? Hahahaha!” And did he say “tighter monetary policy”? Hahahaha! Required Reserves in American banks are, in total, still only a lousy, insignificant, almost nothing, squat-like, stinking $40.2 billion, which is about the same low, low, low amount that it has been since 2000, while deposits and loans grew like a cancer to trillions of dollars, and now Required Reserves as percentage of anything new in the banks is certainly the lowest in the history of banking, because there is nothing less than zero! Hahahaha! So, for how much assets and debt is this piddly $40.2 billion counted as its “reserves”? Doug Noland, in his Credit Bubble Bulletin at PrudentBear.com, reports that bank credit alone is $8.923 trillion. And how fast is bank credit growing? “Bank Credit,” says Mr. Noland, “is now up $280bn over the past ten weeks, with a $627bn, or 10.1% annualized, y-t-d gain”, while “Loans & Leases surged $25.9bn to a record $6.574 TN (10-wk gain of $249bn).” So it looks like about $15.4 trillion in bank assets and liabilities is being backed up by a minuscule $40.2 billion! That’s a microscopic 0.0026%. A quarter of 1%! Hahahaha! Fractional reserve banking at its finest! Hahahaha! And all of this is Mr. Mishkin’s “tighter monetary policy”? Hahahaha! I’m laughing my Stupid Mogambo Butt (SMB) off here! Hahahaha!
Moscow opens the liquidity gates The FT reports from Moscow that the Russian central bank will lower minimum reserve requirements for banks from Thursday to combat the growing liquidity squeeze in the Russian banking system following the US subprime crisis. The decision was one of several measures agreed to fend off a potential liquidity crisis during the next few months. The article quotes Alexei Ulyukayev, Russia’s first deputy central banker, on Wednesday that the central bank had also accepted banks’ credits as collateral for loans for the first time.
@Anonymous on 2007-10-09 17:08:35 said “No one talks about the inevitable tax increases coming” I am really surprised that you haven’t seen the tax increases already – guess they were really stealthy. The rapidly rising home values prop up great property tax collections to fund our protection from our mortal enemies. Property tax is a ‘win-win’ tax – Taxes are collected and consumers see a wealth effect (unlike rising income taxes that did Bush Sr. in). That’s why Greenspan promoted ARMs as a channel for monetory policy. That’s why the foreclosures (and consequent flight to Fixed mortgages) must stop. The Matrix must be funded by keeping people in their homes and their wealth-effect regulated through ARMs. If the foreclosures don’t stop, then Ben would need to engineer wage inflation (investments can no longer drive wages since world is overinvested now – Keynes gave the investment->income->savings causation) and really have to end up killing the dollar. Rising wages with higher income taxes would again be ‘win-win’ taxes to fund the war(s) against enemies who will stop at nothing to destroy our free way of life earned over 300 years. To hell with the dollar, we need to live first. As a few financial historians note: Politics drives Economics NOT the other way around. Wake up. Given this global bubble, there WILL be a depression (Great). We should NOT ask to have our noses cut off by asking for a recession, for, it’s NOT a recession but a depression that we are really asking for. The US and Ben will have none of it. As for the politics, the deficits REALLY don’t matter. The ‘dollar by the wheeler-barrow’ will still be backed by a political power that has enough resources to destroy the planet nine times over. Like Ben’s mere threat to board the helicopter (hence the SURPRISE 50 bps cut – is it that ‘surprising’???), the US’s mere threat to use that awesome firepower is enough to restore faith that the US and her dollar will be around for a long and NOT DEFAULT (Here’s a hint: stay long). Like Mohammed Ali, a ‘crazy man’ cannot be trusted to know fear and be threatened with defeat (or default). Just ask the USSR. Deficits matter for weaklings; Argentina was proved one during Falklands – that’s why UK’s bonds are called Perpetuals – they NEVER will pay principle – rollover is GUARANTEED Invest knowing that Politics drives Economics and you will be a very rich man (and then seek power) – as Hank Paulsen has. Print First – Ask Questions Later. or is it Shoot First – Ask Questions Later?
I have just finished reading Greenspan’s book and I find it very amusing how so many constituents immediately lined up behind his analysis. You can observe it from the timing; the book came out a few weeks ago and… – Paulson grasped at the concept of global “excess savings”, to support markets. – Banks loved the concept that rising debt vs. income does not matter, to justify high debt and thus the prices of their loans and structured finance holdings. – Macro economists were heartened by the position that trade deficits are just a manifestation of labor cost arbitrage in a globalized economy, and thus don’t matter. – Bondholders were cheered by the idea that the market is so huge that China, Japan, Russia and the oil producers could all dump their Treasury holdings and not produce more than a ripple. – Ditto for those that worried about the value of the dollar vs. other currencies, particularly the yen carry traders. – Hedge and private equity funds are just big pools of wealthy risk-takers who benefit the system by reducing risk for the banks. Thus increased regulation would be harmful. – Ditto for credit derivatives; all that troubled him there were documentation back-ups. What DOES Dr. Greenspan worry about most? K-12 education standards and unfunded Medicare benefits for the Baby Boom generation. In other words, go back to sleep, people. If trouble ever arrives it will be like Star Wars: a long time from now, in a place far, far away. Who needs another 50 bp Fed cut? Just FedEx copies of this book to all fund managers and central bankers.
OK, I’m getting annoyed. Anyone notice the title of this blog? ‘Roubini’s Global Economics Blog’ its not ‘Roubini’s Domestic Day Traders Blog’. This is about macroeconomics, not some get rich quick day trading scheme. Looking here for day trading investment advice is not appropriate. Roubini is a very insightful macroeconomics commentator. If you can apply that information to your trading, bully. Complaining here that you have lost money based on a macroeconomics blog just makes you look like an idiot. By the way, didn’t anyone tell you that the S&P 500 stock market index has lost 60% of its value in real terms since 2000? Now thats where macroeconomics comes in. Dollar in debasement.
It seems that Yen Carry Trade is firing on all cylinders again.
The most spectacular outcome of these few years of monetary prolixity has not been only the USD debasement but the inefficiency of the Banks system as an intermediary for channelling money supply, the inefficiency of the Central Banks to notice the perverse effect of their miseandavours , the lack of control of the financial system through the national and supranational bodies. When hearing Mr Greenspan and seeing the aftermath of his contribution , the conclusion is the USA is not the country of the second chance only but the country of the hundredth chance.
The next CPI numbers are really going to be interesting. Import prices are up 5,2% on an annual bases after being down .2% the last month. With Oil also being taxed at 68 $/barrel for the last import prices, that should now change since the barrel is now hitting 82 bucks. What does that leave us with: Deflationary prices from China have vanished and have become massively inflationary (from -0.2% to + 5,2%/a), the falling Oil prices have now resulted in inflationary prices, with utilcap up and exports growing and labor unit costs galloping in the US, prices can´t be too deflationary … I would even say highly inflationary … the next CPI numbers are going to be very interesting. I would even say highly high and that should make bond holders angry. Wait until you see those bond yields go up.
With the consumer tapped out, the pricing power of companies is going to be very low, but everything hanging behind the supply chain is going up. Margins are going to get squeezed. That will be bad for profits and stock market. If the fed cuts it will all get worse.
Some experts said: Job report is lagging indicator. Record High stock markets ( in term of USD) are misleading. Consumers are spending on hugh debts. Hmmm….The only truth is we are landing hard with recession… Give me a break please!
Asset backed commercial paper drops another $6.8 bill-credit problems far from over as the libor/treas spread is still telling you…
weekly jobless claim data and continuing claims data still suggest we are NOT in a recession. They still paint a soft employment picture however, not a recessionary one. If you see the 4 week average of claims spike higher than 374,373 that will be your first clue we have entered a recession. This weeks number was 310,250 and falling.
Dr. R., et al In our debt based fiat currency system, with a negative saving rate for several years, we now have to have about $5-6 dollars of new debt to get one dollar of GDP, (whatever that is and however it is measured). Why has the consumer not stopped buying junk for the McMansions and ministorage bins which he is addicted to? Availability of more debt. Where does the debt come from and what is it used for to keep the consumer, 70% of the economy, alive and moving?? With MEW now almost completely gone there is only one source, high cost credit cards. Heres the stats. http://www.reuters.com/article/newsOne/idUSL0936312820071009?sp=true
It’s pretty pathetic that many of the commentators are justifying NR analysis despite his clearly pathetic record. Macroeconomic analysis without clear interpretation of trends and timings is just useless. NR’s recession call (wrong), his characterization of sucker’s rally (wrong 4 times repeatedly), his oil to $100 call years ago (wrong), decoupling wont happen (wrong) are just a few examples where he got it wrong. Diligent readers should read his past analysis to see how much he got right. This cult following of NR regardless of his poor record borders on idol-worshipping or Branch-Dravidian type of following. The die-hard supporters overlook all obvious evidence and still follow his advice waiting for the sky to collapse. Pathetic. NR may one day prove right, but till then he is wrong. A broken clock shows correct time twice a day.
Looking at the market yesterday, it was great to see the old “two o’clock save” still in action. It must be nice for those guys. I mean, they take a 2-hour lunch, have a couple of martini’s, and still have time to step back into the market and inject some serious cash into the index. I tell ya’, what will these guys do if they ever have to get a real job ??? ——————– Separate Topic: Moral Hazard NOT !!! Here’s a cute little true anecdote about debt and Moral Hazard. Our family has an acquaintance – a woman in her 50′s. She went into one of the major US banks last week (a big bank … one of the household names) and asked for a loan for just under $200,000. NOW … this particular lady does not have a job and has no means of support. Naturally she expected to be turned down by the bank (and actually for financial reasons it would have helped her if she had been rejected). But imagine her surprise when the loan officer from the bank called her and told her that the loan was APPROVED. And in fact – the bank even offered to bump up the loan to $250,000 ! So, we’ve got a person with no job, no visible means of support .. and a major bank is willing to kick over $250,000 no sweat. It doesn’t look like Moral Hazard has had much effect on the banking system … at least not where I see things down on the street. We’re not out of this great Credit Bubble yet, and somewhere out there a major blowout is still coming. Pete, CA
Here’s my 2 cents to stocks and housing and economies: 1) Dollar could rebound substantially due to sentiment extreme, and world-wide speculation in China. Do you realize that China reserve has been soaring lately much mroe than the trade surplus? The current theory is that too many chinese firms borrowed US dollars and turn around and throw it back into china — why not? Even a brain-dead know Chinese Yuan is going to appreciate, coupled with the hot Real Estate and Stock Bubble! Same thing to India, and many other places in Asia. When this carry trade un-wind, dollar will bottom. 2) Watch for Asia, or particularly China stock market implosion, which will strengthen dollar, kill those stupid SP500 earnings-beating sequence. Imagine if Dollar goes from 78 cash index to 90s, that’s 20% appreciation, and it means probably 10% loss in earnings (assuming SP500 50% earnings are derived from oversea). 3) The ARM reset is going to kill consumptions much more than many expected — the key is the RE-FINANCING. And ARM reset is increasing each month, with the monster share coming due end of the year and beginning of next year. Another note, the Realty Track data said foreclosures dropped 8% in Sept from Aug. I think this is easily explained by the Monthly ARM reset picture — The ARM reset had a slight dip in June 2007, and coupled with 60 to 90 days delay, you would see this dip in Sept. But watch out for ARM Reset biggie in Nov and December. Real Biggie. Every reset will lower consumptions, and foreclosure will impact neighborhood prices. Case in point — Realty Track said previous foreclosure dip was seen in June 2007. If you look at the ARM Reset picture, the previous ARM reset dip occured back in March 2007.
@Pete, CA, WOW … what did she want to do with the money if I may ask? Buy a house? In Germany that woman wouldn´t have made it to the door! AFFG
What makes everything so incredibly surreal right now is the continued willingness of Wall St. firms to borrow money to buy stocks (to sustain the stock market) as well as the continued willingness of the foreign central banks to keep printing money (to sustain the US economy). This is absolute madness. I now understand why all the investment banks (in collusion with Henry Paulson) decided to deceive the public about the mark-to-market losses on their assets in their last quarterly reports. It was essential in order to preserve the ability of the investment banks to continue to borrow money to buy stocks (in order to keep the stock market artifically propped up). If they reported their true mark-to-market losses, the credit markets would have shunned their debt, cutting off their borrowing capacity, and in turn crushing the stock market (because they wouldn’t be able to finance their own stock trading or the hedge funds’ stock trading). Goldman Sachs alone has $567 BILLION in assets that they did NOT mark-to-market. Their equity base is $39 billion, so it would only take a loss of 7% on those fictitiously valued assets for the company to be WIPED OUT.
I will be happy to have a comment from somebody on this forum on the SSEC index. It seems to me that this can be “the mother of all bubbles”. You can take a look of SSEC index at: http://www.bloomberg.com/apps/cbuilder?ticker1=SHCOMP:IND Thanks in advance for your comments. Danilo Italy
May I recommend the reading of the Basle 2 financial rules which should be in force in a very near future (see BIS Basle 2) Whilst I confess the subject to be dry, reader may understand the extremely delicate equilibrium between reserves (liquidity ratios) bonds « rating and change of ratings » impact on liquidity requirement , the promiscuous relationship between Financial institutions and rating agencies, the precarious situation of many banks worldwide. It may as well help to understand the dubious role played by the rating agencies through the incestuous relationship between financial institutions and the rating agencies. In a nutshell IMF WORLD Bank chatters should be revisited and consideration being given in having a supranational rating agency through the merger of the WB banking assistance and the IMF it could secure an independent judgement on countries ratings, bonds issuers corporate and private.
how about 374,256.68 is it recessionary
‘Given the current climate, the odds that the United States will skirt a recession now look better than 50/50, Greenspan said. In March, he put the odds of a recession over the next six to nine months at one-third, but that could be offset by stock market prices if they continue to rise, he said.’ http://money.cnn.com/2007/10/10/news/economy/greenspan_reports.ap/index.htm Apparently, AG believes recessions can be postponed or avoided by gains in stock prices. If he believes this, then BB probably believes it as well. What will replace HEW? Well of course, borrowing from retirement plans. As asset prices rise, consumers will borrow against their 401ks. The higher the markets go, the more they can borrow. Welcome to next bubble, courtesy of the Fed in an election year. Greenspan ushered in the age of bubbles and Bernake is continuing the mania. Of course, it will all end badly as in 1999/2000. However IMO, it is politically unacceptable to have asset prices in both housing and stocks deflate at the same time. If this were to happen as it should given the fundmaentals, their might be political fallout. This is classic Wave 5 behavior from Elliott Wave theory. IMO, stock prices will gain momentum into the elections. After that, it s anyone’s guess.
Walmart posts 1.4% sales growth. Target posts 1.2% sales growth. In real terms, this unmistakably shows consumer spending is falling as we speak. These are RECESSIONARY numbers. All the government statistics about employment, inflation and GDP growth are lies. The business reports for revenue growth cannot be manipulated the same way. I think foreign investors are finally realizing the charade that the government (our Ministry of Truth) is perpetrating with our economic statistics.
“Sales are coming in soft, as expected,” said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. “It was a perfect storm, a combination of abnormally warm weather, high food and energy prices, a continued sluggish housing marketing and tight credit.” Sounds like the economy is booming eh? I guess as long as sales are forecasted soft it is ok, oh well, it was expected, no big deal. Add some cold weather and heating oil prices that are going to be ridiculous and I guess that added burden will increase spending? It would seem to me that people would buy cold weather stuff now while it is cheap (and maybe why the sales figures are low) rather than waiting for the inevitable winter weather to set in and paying a premium for it, who knows, it is america after all – the home of the I want it now and dont care how I get it culture. As for the SSEC index, that thing is a spring and it just keeps coiling tighter and tighter – might hit 10000 by the time the olympics are hosted. btw, what is the big deal about the olympics anyways? Do people still actually watch that garbage with any interest?
“Lawmakers are pushing a variety of bills that would punish China for what they see as unfair trade practices such as manipulating its currency to keep its value low against the dollar as a way of boosting Chinese imports and making it harder for American companies to sell their products in China.” hey kettle, you are black Here is another classic outtake ”The improvement reflected a 0.4 percent rise in exports…The boom in U.S. exports”
Re — RealityCheck on 2007-10-11 09:40:05 Some people here, like me, may not just follow Dr. Roubini’s views, but are happy to find someone like him, a professor, who share their views. I believe that many things Dr. Roubini has predicted should have happened in a normal world. For me, the fact that many of those things haven’t happened means that this economic world is totally irrational. I personally think that the reason for that is that the current economic system works as a pyramid scheme.
*KROSZNER SAYS FED MONITORING INFLATION `CLOSELY’ nobody believes the Fed anymore, it seems that everyone convinced that reflation is the theme. and it indeed looks like that. Growth and prosperity must be protected even if it comes at the price of inflation and a devaluation of dollar savings vis a vis the rest of the world. The US is in effect borrowing from the future, hoping that the borrowed credit will earn a high enough rate of return to make up for the initial dollar deval. This is a risky strategy for two reasons: devals are addictive if they become part of mainstream econ.policy. More importantly though if the dollar starts to slide big time, it will be harder to reflate the economy to a growth rate that compensates for the deval. The deval risks sending the economy down on a slippery slope.. From the tandem 1. Gold as safe haven, Commodities that are priced in dollar, mainly oil 2. Dollar (fiat money) 3. Equities (nominal growth) It will be nominal growth that will be reflated, dollar devalued and as a result the dollar value of commodities will rise and gold enjoy its status as an alternative store of value. I think this pretty much sums up ‘The Game’ at the moment. While this seems all very logical, I believe that the $ should not be allowed to collapse, given the USD’s status as a reserve currency. There are large concentrated holdings of dollars, central banks who will have no choice but to offload their dollar holdings. Maybe they are already doing that. This will push bond yields to the sky in the US, and will ultimately hurt the US economy more than what can be achieved with a short term deval of the currency. The Fed isnt truly an independent institution anymore, it feels highly politicized, therefore for them to act in the sound long term interests of the US doesnt seem to be on the agenda. Short term the dollar seems oversold anyay, and I wouldnt be surprised if we saw some dollar supporting rhetoric from policymakers. The Fed is scared to be seen not rescuing the markets, but if the dollar blows up the blame will also fall on them, so they will try to walk a tightrope between not letting the dollar collapse brutally and keeping the stock market bubble from bursting violently Jeremiah ”You will go to them, but for their part, they will not listen to you”
“Written by Guest on 2007-10-09 23:50:01″ you are sick. please go check with a doctor
The SPX and SSEC going higher is not really what matters. What matters is that you are measuring things with shrinking yardsticks. It is the USD and the RMB that are losing value! For the USD, that’s very clear: WTI back above 83. Gold above 750. Copper at 3.70. Grains just below their recent highs. The Euro back above 1.42. USDCAD at 0.97. For the RMB, inflation figures in China don’t leave room for discussion. The point is that, unless the Fed changes course, the USD will lose value against real things, no matter what central banks of countries with Current-Account surpluses do with their exchange rates: - if they stop intervening and let their currencies appreciate against the USD (as Claudio Haddad recently recommended for Brazil on this site), prices will keep stable in those currencies, but will rise in USD; - if they keep buying dollars and printing huge amounts of their currencies (as China, Argentina et al are currently doing), they will keep the exchange rates stable but will have high inflation, so prices of real things in USD will rise just the same. Players all over the world are starting to assume that the USD will just keep losing purchasing power in real things. The US is risking a massive run away from the USD and the loss of its role as reserve currency. As Krugman said in his latest paper, the USD could have a “Wily E. Coyote moment”. And as he also said, the US in 2007 isn’t Argentina in 2001. Only that, contrary to what he meant, the US could be in a much direr situation now. Because even when Argentina’s imports dropped from 20 billion USD in 2001 to 9 billion in 2002, she was an oil and natural gas exporter. What if oil and ng exporters now decide (realize?) that they have way more than enough USDs and USD-denominated debt in their reserves and stop selling their precious finite, absolutely-exhaustible resources to the US until they have exchanged at least half their stacks of printed paper for real things? Given that the US imports 59 % of the crude oil and petroleum products they consume, the impact on US life would be truly shocking. The one thing the Fed can do to stop this collision course is to send a very strong signal that they care about the USD’s role as international reserve currency and about it keeping its purchasing power in internationally traded goods. That signal would be a surprise rate HIKE of 50 bp before Oct 31. After all, the last rate cut was based on wrong data input (Aug NFP -4K when it turned out to be +89K). A decent retail sales data tomorrow would round up the needed support for reversing that cut. But it would be even better if the Fed reversed the cut in the face of a bad retail sales data. Because that would send this message to the world: “We acknowledge the important role the USD plays in global trade and we assure all countries that our monetary policy will be geared first and foremost to preserve the purchasing power of the USD for international transactions, so that countries can confidently hold it (or debt denominated in it) as a store of value.” Conversely, this was Sep. 18′s message: “Look, the only thing we care about when setting our monetary policy is the level of our internal economic activity. And by that we mean mainly the production of goods and services that you can’t buy from us. We don’t care much about our currency holding its purchasing power internally, let alone when measured in internationally traded goods. So, if you use our currency to trade between yourselves, it’s your problem. And if you are so stupid as to use it (or debt denominated in it) for holding your savings, you do need professional help.”
“I couldn’t agree more that the economy is very strong here in New England. If there is any problem in the horizon it is far more likely to be inflation than recession. Written by Guest on 2007-10-10 21:39:05″ I completely agree with you.
“1) Dollar could rebound substantially due to sentiment extreme, and world-wide speculation in China. Do you realize that China reserve has been soaring lately much mroe than the trade surplus? The current theory is that too many chinese firms borrowed US dollars and turn around and throw it back into china — why not? Even a brain-dead know Chinese Yuan is going to appreciate, coupled with the hot Real Estate and Stock Bubble!” sure, dollar rebound when Fed continues to knife $. stupid or smart call, you decide.
RealThink, agree.. and if you browse through recent statements from Fed officials, you can see that they do mention the USD. my interpretation was that they are trying to send the message that they wont let the dollar go. even the Fed minutes had a few lines dedicated to that nevertheless I dont trust the Fed 100%. and I dont seem to be alone.. on top of the dollar they have managed to devalue an even more important asset: credibility Jeremiah ”You will go to them, but for their part, they will not listen to you”
The main point is that the FED should have never cut the FFR. @RealThink, you are completely right. But I NOW am not so curtain they will not cut. The main point to be made is that the economy as such might appear to be strong, but it is growing on a unsustainable path and has severe structural problems. Too much consumption, too little exportable goods and services. That means that people have to stop consuming and start saving, while banks divert savings from consumption to investments. That can only be achieved when interest rates go up. And I don´t mean the fed funds rate but the rate of free capital for savings. In order to do that the FED has to throttle the credit spigot and make savings scarcer. I don´t believe that it can be achieved with the FFR. I am inclined to believe that an increase in the Reserve Requirements Ration (RRR) might be the better way. I am slowly disbelieving that banks (especially US banks) actually know how to find proper real investments.
@Jeremiah, the FED is playing a two faced game. They say there is no inflation, say they monitor the dollar in order to keep bond holders calm. At the same time they are flattening the credit accelerator in order to keep banks solvent. It´s a one way street. It will reverse eventually. I believe that the inflation sentiment will have to come back. That is why I can´t wait for the PPI/CPI numbers. They are going to be really bad and that could cause a small panic on the bond market and piss off investors. Just wait … as I said earlier on, insanity will have to get insane before it gets anywhere near normal. For the time being keep you eyes on the price of Oil, Gold and Treasuries. The stock market might be up, but Gold is moving up faster!
On a personal note, my Father is a retired fireman and after serving the community in this role, he was served notice by the government he served that his insurance was being scaled back. This is truly great stuff. Thanks Ben, “W”, Hank ! I hope the transfer of wealth to the top serves you all so very well and you sleep better than ever as your policies punish retired public servants, all fixed income retirees and literally starve the world’s poor in not only 3rd world countries, but soon developed countries with intitials USA now and in the near future. Good luck with the crime fighting ! By the way, how will anyone who is not a trust fund baby yet is young and getting married in the USA ever buy a home again at these prices ? How Hank’s 500 visits to China have not included a transfer of “market management expertise” to the Chinese I do not understand. How does a Communist government allow such a bubble to form in the Shanghai ? Just sell the damn futures morons and the herd has to follow ! I had dinner with a friend who lived in China for a few years. According to her, the building inequalities in China have currently led to unrest and possibly may even result in Civil War at some point. What are the silly Chinese with their super Shanghai Bubble going to do with all of the losers when reality sets in ? How are on Earth have they allowed this to happen ? Dave Chiang, any thoughts ?
The continuing sage of ASBP http://www.reportonbusiness.com/servlet/story/RTGAM.20071010.wcoventreee1010/BNStory/Business/home ..three months into extending the “extendibles” so you have 42% of the market name it after a rocket and say it is bulletproof… interest costs exceed the yields on the underlying assets.”
AFFG thanks for your comment i dont live in the US, hence only get an impression of things through what I read, mostly on the net. it seems to me that the public’s perception of inflation is at a much higher level than what the Fed tell us inflation is (not the Fed technically, but you get the point). so… if you indeed get high inflation prints, i would not be surprised to see a public uproar.. which could force officials into reasserting a strong dollar policy. the Fed talk of well-anchored inflation expectations is also questionable to me. the Conference Board’s index for inflation expectations 12month forward is rising steadily on a multi-year basis. if things go on their current path, the expectation could rise to the 5.50-6.50 range (its now at 5.0%). its been oscillating between 4.00 and 5.50 for the period i could check (1987-2007). well anchored inflation expectations.. ??? Jeremiah ”You will go to them, but for their part, they will not listen to you”
I have a great idea to relieve some of the pressure on people who can not make their mortgage payments. Reassess and REDUCE property taxes based on the new reduced housing prices. This is just plain common sense right 2 + 2 = 4. How come no one is talking about it as part of a solution ? Rudy, Hillary, Barack anyone ? In the USA in 2007, you would be better off to think 2 + 2 = 3… What is a catchy phrase to promote this logical solution ? It has to be 3 words and chantable. How about Reassess ! Reassess ! Reassess ! Now, you have to get a few people together out of the pool of every single homeowner in the USA to meet publicly and chant it and then MAYBE REAL CHANGE HAPPENS ! Here in Chicago can you imagine this Daley wants to raise taxes on property EVEN MORE ! Outrageous !
http://finance.yahoo.com/q/it?s=CFC Angelo Mozilo doesn´t seem to be confident that CFC stocks will get any higher.;-) @JMa, my father is retiring too and he got something similar. The only difference, his pension is denominated is Swiss Frank. He came back from China and was shocked to see the time frame in which Chinese companies expect their investment to amortize. The expect a full scale multi billion industrial investment to be amortized in … hold you hats on … 2 YEARS! He said they categorically refuse to understand that they will eventually loose their low wage competitive advantage and that they will have to extend their investment horizon now. But they just ignore it. He was also shocked to see that the plants built in China are 70s Japanese technology which are not built in the West anymore because they are by far and large too small and not competitive. He said he had visited the Japanese original in the 70s and was shocked to recognize the exact copy of the plant in China. By the way they bought the technology. Bottom line: They do not spend one cent in process engineering and he doubts they actually are able to do so. I was stunned to hear that. If this is what the Chinese economy is made of, they are going to get a bad surprise when they reevaluate their currency. It doesn´t suprise me that their economy is running at 10% / a. I believe that inflation and the induced inequality is Chinas main concern and what ever happens, it will be certainly not very nice. When the currency reevaluates, prices will go down, but so will some investments, leading to a shock on the stock market and in the full economy as people loose nominal asset values and companies get beaten up by foreign companies. Currency manipulations never pay off.
@AFFG, My personal experience resonates with your father’s. I was involved with a brand new stainless steel plant with nearly 200k ton/year capacity and what happened there was exactly the same problem: the local people just simply were unable to make it work! Yeah everything is dirt cheap from land to labor, but the problem is they do not have qualified technicians/engineers to run the plant. So since the commissioning they have been losing money everyday. That really reminds me of the so-called Big Leap Forward. I hate to see China collapsing, but such problems really are worring…
We have an interesting tide developing in the equity markets today, at this very moment, momentum may be being reversed by some very big players…. Stay tuned, this is going to be interesting…
Jeremiah, this was in my local paper this morning (Akron Beacon Journal) – consumer staples are rising quite fast: ”Corn prices started rising sharply in September 2006 as the ethanol industry’s demand grew, driven by high oil prices and a federal mandate for the U.S. to use 7 billion gallons of renewable fuels by 2012. Meat and dairy prices have increased since late summer 2006 6.7 percent for ground beef, 6.9 percent for chicken breasts and a painful 26 percent for whole milk, according to the Labor Department.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWKV52Fxn7Gc&refer=home Oct. 11 (Bloomberg) — European Central Bank governing council member Axel Weber said the bank may need to raise interest rates to a level that restricts economic growth to keep inflation under control. “If risks to price stability are threatening to materialize, monetary policy can’t lose sight of its primary mandate — even if that means no longer supporting the robust economy or becoming restrictive,” Weber, who also heads Germany’s Bundesbank, said in the text of a speech in Munich today. There may be an “additional need” to raise interest rates, given the “expected acceleration in euro-region inflation over the coming months.” While Weber acknowledged “increased uncertainty,” he said the ECB needs to remain focused on fighting inflation. “Price increases are taking place on a broad front and are no longer limited to energy and volatile food prices,” he said.” I want to see that. The ECB hikes and the FED cuts … wow … MAN … What´s happening … nobody can tell me that the stock market is plunging because JP decided that some kind of overblown Chinese new economy stock was not worth the bubble price it was being traded at. Nasdaq down 1,10 % and falling … Dow down sharp … oups …
In past blogs, I’ve talked about a financial war that’s taking place right now. (the Gov’t/big players taking down the leveraged hedgies and Fgn Gov’ts) What I’ve said is that “NR was correct about his predictions (Q2-ish recession) and that the Gov’t/big players had also come to a similar conclusion, so they used the last few months to position themselves accordingly.” In that, I said they’ve built up large cash positions, bought discount securities from de-leveraging hedgies, and unloaded the bad debt on “targets”. What we’ve seen over the last few weeks is a bull run based on those recently amassed cash positions, (and additionally the big boys access to the fed credit card) and new leverage based on discounted earnings. I believe this trend will continue to roller coaster in a similar fashion, with 2 month 1,000pt fluctuations not being uncommon!?!?! This process will continue to flush out leveraged participants (that don’t have access to large reserves) on the downswings, and provide large gains for those with access to funds on the upswings as they continually buy at discount. What a game. It’s like Sim Market. YOU CAN’T HANDLE THE TRUTH!!! Rich H (reporting live from wall st)
It looks like a free fall … if you ask me …
Don’t worry, here come da PPT to save the close once again!
Don’t call it a free fall yet.
Loss almost cut in half now LOLOLOL PPT! PPT! PPT!
AFFG — If China gets into trouble, that will signal a dark future for the US. The public+private debt of the US is 48 trillion dollars (with social security and medicare liabilities it is 98 trillion). Still, the economy is going forward, because this debt is financed by a huge borrowing from the future (people, companies and the government pushes an ever increasing debt problem into the future). It goes like this: a person borrows money, the debt is securitized by the bank and sold, someone buys it in the hope of selling it for more money, the person in the begining of the chain may invest in some funds which invest in these securities, thus this person makes profit on its own debt. Debt becomes wealth. The price is an ever increasing amount of debt pushed into the future. This game could not work without cheap import, which prevents inflation (because this game creates money out of nothing), and without the ability of the US to pay for its import in its own currency. China supports the US by 200 billion dollar a year, which is not that much. But it allows the 48 trillion credit-game going. Once this support is gone, the credit game is over, and you end up with a 48 trillion dollar problem.
DOW BACK ABOVE 14K NOW!!!! LOOK AT ‘EM GOOOOOOO!
WOW, a 200 point down reversal for the Doe, ease Ben, ease!! Hurry before it gets worse!
3:52[MCO] Moody’s downgrades $33.4 bln of subprime mortgage securities
Look at the bid to try and hold 14K. Man, this is criminal.
Dow only donw 50 now, they are gonna close her green over the next 3 minutes!!!
The U.S. government lies. Their inflation numbers are a lie. Anyone working to make ends meet in the U.S. knows that inflation isn’t “manageable”, but I guess if they say everything is okay on the news then we are all supposed to feel better. I have seen many comments to the effect of “those darn American consumers, buying things they don’t need with money they don’t have”. It’s much too sweeping of a generalization. The Fed says that 43% of Americans are spending more than they make. A related fact, 1 in 5 Americans are scraping by on insufficient funds – low wages and/or paltry aid. The number one cause for U.S. consumer bankruptcy? Medical debt. What were those selfish SOBs thinking getting sick without being wealthy? BTW, many (if not most) of those filing due to medical debt are insured. You must have been living in a cave to miss the increases in housing, energy, and college costs. The short version? It’s insolvency – not liquidity.
It took only a couple of hours after the market closed after dropping spectacularly just to jump up a bit and goofy popped up on TV to tell everyone that the economy is fine despite job concerns. So … credit is a concern, housing is a concern, jobs are a concern, prices are a concern, the dollar is a concern … a lot of concerns for a prospering economy … but as you know … psychology is half of the economy as the great Ludwig Erhard once said. http://www.cnbc.com/id/21254673 ”President Bush acknowledged that Americans are concerned about job security, health care and retirement but maintained that the U.S. economy remains strong.” Great … health care and retirement are also a concern .. well that leaves us with little … I guess.
WASHINGTON (Reuters) – Treasury Secretary Henry Paulson said on Thursday he backs a strong dollar, reaffirming long-standing policy and addressing concerns in Europe that a soaring euro may undermine economies there.
“He that would speak truth must first have one foot in the stirrup” says an old Turkish proverb. No doubt Roubini long ago saddled up. For Roubini deals in delivering fundamental truths, while his detractors ambush from pretense. Bloggers who prefer pretense to fundamentals would likely prefer another website of which there are soooo many, for wide is the way that leads to destruction…and lost shirts. One must remember that the stock market does not deal with values, but perceived potential values. That $600 piece of Google reflects the perception of what it will be some day, not its value now. And perception floats in a lot of Wall Street and government froth. Basically, there are two arguments. The Wall Street pretenders believe the stock market will continue forever hand in hand with Father Fed. Roubini says it won’t. Roubini says the economy is one thing and the perception of the economy another. You can ignore truth, he says, and you can put it off. But eventually it comes back to bite you. A lot of players in the market know this, and are playing odds on a short term basis. At the slightest drunken hiccup (i.e. a moratorium on a bank’s withdrawals), and they run for the exits like crazy Cramers. (In this controlled game, it’s okay when the Fed bails out with billions its losing favorites–the “winners”.) The fundamental economic truth for most but the protected financial high rollers is raging inflation–at more than 12 percent as reported in a recent Alan Abelson aside in Barron’s), stagnant wages, loss of production jobs and a complete Fed burglary–via above wage inflation and below inflation interest earnings–of future growth based on savings–by people who put money away to make future big purchases or to live on. Theirs is real growth in the economy–and it isn’t there. The great thing about savers is that they spend wisely and don’t run to Las Vegas for a crap shoot or fantasize instant lifestyle in a McMansion on a subprime loan. Their money is a different kind of money-not the kind kids spend on foreign sewn Juicy Couture fashion at Neiman Marcus. In main, the savers and the producers are the floudering golden goose; and private banker Bernanke and his government enablers are forcing them to spend that money they would have saved on gas and life’s necessities, like food. Truth stings. And, as Jefferson said, “It is error alone which needs the support of government. Truth can stand by itself.” Just be ready to ride.
http://money.cnn.com/news/newsfeeds/articles/djf500/200710112049DOWJONESDJONLINE001100_FORTUNE5.htm Shaken, not stirred, please…
amazing how so many executives could be chased out the door of the major banks and investment banks while the stock averages sit near all time highs having a correction of merely 10%… it is modern day financial wizardry
Dave Chiang Good Post as always It will take some getting used to the idea that $ are being held for other than the best intentions. My personal conviction is that I should punt. The punt is a good choice when on third down and the clock is with me. When faced with armageddon I may choose to run the ball, ie all out offense. What, I don’t know — kill or something. What the hell would Ben Bernanke do ?
—it’s not enough to predict a recession (or hard landing). You have to predict when, or it’s of no value.—– I gather that means when recession is officially declared to have begun, not necessarily when one actually has. In the U.S., the NBER is charged with determining recession start and end dates. Turns out that, until the 2001 recession, employment data carried substantial weight whereas real GDP was relatively lighter. Lets go back to NBER, November 26, 2001 – “The committee gives relatively little weight to real GDP because it is only measured quarterly and it is subject to continuing, large revisions … The broadest monthly indicator is employment in the entire economy.” (NBER) Now ahead to July 17, 2003 – ”Q:The most recent data indicate that since November 2001, the unemployment rate has risen from 5.6 percent to 6.4 percent and payroll employment has fallen by almost a million jobs. How can the NBER say that the economy began an expansion in November 2001? A: The NBER defines expansions and recessions in terms of whether aggregate economic activity is rising or falling, and it views real GDP as the single best measure of economic activity.” (NBER) The contrast is evident and apparently to do with a company, Macroeconomic Advisors, getting on board for monthly GDP estimates. Well and good if one accepts privately determined real GDP to be a sufficient measure and that it should be provided by the above mentioned firm* — This particular Juan, though, does not and sees what he takes as political and economic bias. *Chris Varvares is President of Macroeconomic Advisers, a company he co-founded with Joel Prakken and Laurence Meyer as Laurence H. Meyer & Associates in 1982. The firm became Macroeconomic Advisers in June of 1996 when Dr. Meyer joined the Board of Governors of the Federal Reserve System.
print faster better definition of recession would be based on decline in both rate and mass of productive economy profit. this allows for, contains, the possibility of simultaneous recession and asset price inflation. problem is, profit as calculated on an opportunity cost basis or by the BEA is a mismeasure.
They are going to bend heaven and Earth to keep this going until after the Olympics and the elections. Don’t fire until you see the whites of their eyes!
ZSE was on fire again this week, too http://www.zse.co.zw/
ECB gold sales The European Central bank announced on Wednesday that European central banks sold 475.75t gold in one year up to 26 September 2007, a figure that is close to the maximum allowed (500t) per year until 2009, writes Le Monde.
My god, I thought the consumer had retrenched, US retail sales for september +0.6%. Stop selectively quoting data to support your nonsensical arguments.
So much for the US economy on the ropes. People just keep spending and spending. With today’s data, my preliminary est for Q3 GDP is 2.98%. Hardly a “hard landing”.
”The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $380.2 billion, an increase of 0.6 percent (±0.5%) from the previous month and 5.0 percent (±0.8%) above September 2006″ according to http://www.census.gov/svsd/www/retail.html There are large errors in the estimates (+-0.5%). I can’t understand how the large imprecision i econonomical data is ignored. The figures indicate anything from low growth to very high growth.
“Consumers are staying resilient in the face of economic difficulty,” Ryan Reed, an economist at National City Corp. in Cleveland, Ohio, said before the report. “Housing will remain a drag on the economy, but the labor market and equity- price increases are keeping consumer spending growing.”
@CleveR, I would advise you to do the same thing: ”As for retail sales, excluding motor vehicles and parts, retail sales rose 0.4 percent last month, slightly ahead of analysts’ expectations for a 0.3 percent increase. Gas stations’ sales were up 2 percent in a month that saw oil prices spike.” Retail went up because prices for Oil related products went through the roof not because they went to buy more stuff! ”U.S. producer prices advanced by a larger-than-expected 1.1 percent in September on rebounding energy prices, Labor Department data on Friday showed, but a key measure of core inflation at the producer level rose by a slight 0.1 percent.” Just as I said, the inflation game is coming to haunt us again. 1,1% … that´s a monthly number! Prices increased more than 13%/a … WOW! The core inflation is low … but don´t forget, the core always lag´s to the wholesale number. If companies can´t pass the prices to consumers, then either there is a fair chance that profits will get under pressure or if they can … then the CPI will go through the roof and will make further rate cuts by the FED look fairly stupid. @Guest on 2007-10-12 07:56:08, Your ESTIMATE for GDP growth might be at 3% in dollars. My CERTITUDE is that inflation numbers as a whole are up 13%/a!
Sorry here is the source of my quotation. http://www.cnbc.com/id/21264614
ehm, we from the History Repeats Itself department would like to present something on the lighter side A part of the movie “TRUE STORIES” from 1986: http://www.youtube.com/watch?v=K2TyF1CbsDs In this movie the Talking Heads song about the commercialization of America mentions Gulf+Western in the line “With your Gulf and Western and your Mastercard, got what you wanted and lost what you had” Sort of sounds like today albeit a bit differently
Sorry guest, those numbers don’t add up. I suspect a large revision is coming. 2.98%? Nope, 1.5%. PCE growth as poor in September.
Re: retail sales Excluding gasoline and food sales were up 0.3% Excluding autos, gasoline and food sales were up 0.06% General merchandise stores, the second largest sector after autos, sales were DOWN 0.1%. Restaurants and bars (#4 in size)…0% It looks to me that, except for autos which swing depending on how sales are booked, almost all the “discretionary” spending is being curtailed.
First rule of Census Board bullshit: If they don’t have the approval of the retailers and it doesn’t match, their numbers are ignored(which worked well last month to). While inflation in energy and food obviously drove it up some this month, not that much. This is why revisions are large. It also explains why the BEA takes years to properly caculate quarterly GDP growth. The last couple of years, consumer spending has been overestimated.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDFa.ech7cUs&refer=home This is what I mean: ” “The stronger-than-expected PPI report should add some upside risks to next week’s headline CPI number,” said Zach Pandl, economist at Lehman Brothers Holdings Inc. The Labor Department next week reports on the consumer price index. [...] Raising Prices Faced with rising commodity costs, some companies are raising prices to maintain their profit margins. Kimberly-Clark Corp., the maker of Huggies diapers, said Oct 9 it’s raising prices in the U.S. 4 percent to 7 percent on Feb. 3 to counter higher raw material and energy costs. The increases will affect products in the company’s consumer tissue and baby and childcare businesses, the Dallas-based company said in a statement. “The increases are necessary to offset significant inflationary pressure from higher raw material and energy costs,” the company said. Some companies aren’t passing on all their cost increases to consumers. “We pass on a lower rate of price increases to consumers than we are feeling in our input costs,” said Stephen Sanger, chairman of food processor General Mills Inc. yesterday at the annual Business Council meeting in Williamsburg, Virginia. “
AFFG: dont you love it when sales “soar” by .4% but the actual cost of the items sold were 10% more than a month earlier – hmmmm, wonder why sales increased? It is alot like Bush and his magnificent work reducing the deficit, geee wonder how that works. Smoke and mirrors, just like corporate earnings.
I remember the same thing happening back in the mid-70′s. Retail sales were up dollar rise because of rising energy prices due to the OPEC embargo. RE: I have to agree with anon, guest, your figures are to high. You made the same mistake last quarter and got burned on the downside as I remember. I don’t believe Personal Consumption came in at 2.98% and needs to be revised downwards but that is for a later date. But other factors such as increasing losses in residential investment and flat capital spending will be a drag on growth.
Vey true re. 1970s when many businesses failed to differentiate between nominal and real, and sunk away… the MNC which i worked for at the time did pretty well though, first because we had vertical org, could largely self-supply, second because size permitted us to squeeze outside suppliers, third because of near monopoly in two main product lines and low price elasticity. one customer, begging for better terms, claimed that his firm required more since it ‘had become addicted’. but direct then-and-now comparison must take account of, oh, higher savings rate then, somewht better real profit rate then, generally higher real hourly wages than now and not ‘quite’ so poor a set of debt ratios as today… we were still early in the long decay whereas today not.
people love to live in a lie. waking up from a dream or truth is too painful. real inflation, medicare and social security crisis are all too painful. please plug me back to matrix again