Interview on CNBC’s Kudlow & Company
Here is a link to my appearance on CNBC’s Kudlow & Company last night debating “Recession or Not?” with Brian Wesbury.
Real consumption spending in November was better than expected after flat readings for September and October. But now December looks very weak and will be the weakest holiday season since 2002 when the economy was barely recovering from the 2001 recession; ShopperTrak reports that retail traffic has now fallen for three weeks in a row in December. As reported by Bloomberg:
The Reuters/University of Michigan final index of consumer sentiment for December dropped to 75.5, the lowest since October 2005, from 76.1 last month. The gauge has averaged 88 since monthly data were first compiled in 1978.
Weekly surveys suggest the November spending boom may not be sustained. Holiday sales declined in the seven days ended Dec. 15 for the third straight week, according to ShopperTrak RCT Corp. This year’s holiday season may be the weakest since 2002, according to the National Retail Federation.
Circuit City, the second-largest U.S. consumer-electronics retailer, said its third-quarter loss widened to $207.3 million, or $1.26 a share, from a loss of $20.4 million, or 12 cents, a year earlier. Sales dropped 3.1 percent to $2.94 billion, the Richmond, Virginia-based company said today in a statement.
December has had “a little slower start to the season than we had hoped,” Brad Anderson, chief executive officer of Best Buy, the largest U.S. consumer-electronics retailer, said in a Dec. 18 interview.
In the meanwhile residential investment is still in free fall, capex spending by the corporate sector is falling (three months of falling durable goods orders), non residential commercial real estate is starting to experience a severe crunch after years of excesses, the large build-up inventories of unsold goods in Q3 will have a payback in terms of weak growth in Q4, very weak real income growth, a weakening of the labor market as signaled by rising initial claims for unemployment benefits, forward looking manufacturing surveys (such as the Philly Fed one) being very weak, corporate earnings already falling in Q3 (-8.5% y-o-y) and expected to fall even more in Q4, the savingless and debt burdened consumer is on the ropes and the recoupling of the rest of the world will limit how much net exports will improve in 2008. Add to this oil above $90, the most severe US and global financial crisis in 20 years with a worsening liquidity and credit crunch and investors’ expectations being real gloomy. When you add it all up we get a very weak growth rate in Q4 (with possibly the recession having already started in December, as argued today by Bill Gross of Pimco) and the economy headed towards an actual recession in early 2008. As argued here before at this point the debate is not any more on soft landing versus hard landing but rather how hard the hard landing will be, i.e. are we going to experience a mild recession or a more severe recesssion.
63 Responses to “Interview on CNBC’s Kudlow & Company”
One of your better appearances on Kudlow, I think. The show moves alot quicker when Larry includes guests that don’t necessarily share his own view. Otherwise, his questions take about 5 minutes to ask (and then answer at the same time) after which we usually hear guests utter responses like ‘absolutely right Larry… Larry, you’re spot on…. Larry, I couldn’t agree more’. Kudos for scaling back your participation in that circus side show.
Bill Gross argues that the US has already entered in a recession in December… http://www.ft.com/cms/s/0/d8943514-af66-11dc-880f-0000779fd2ac.html Fund chief says US in recession By Matthew Garrahan in Los Angeles Financial Times Published: December 21 2007 02:00 Bill Gross, founder of Pimco, one of the world’s largest fixed-income managers, sounded a downbeat note on the US economy by saying it had gone into recession. ”If I had to be bold I’d say we began a recession in December,” he said in a Financial Times interview, in which he called on the Federal Reserve to bring interest rates down to 3 per cent. The recession would last “four to five months”, he thought, but would be prolonged if the administration and Congress failed to “take some rather unperceived and unforecasted measures in terms of fiscal stimulation”. Mr Gross, whose company has $750bn of assets under management, was critical of US attempts to stabilise credit markets, describing the “Super Siv” and plans to freeze mortgage teaser rates as a “temporary fix”. He said: “What needs to be done is something fairly radical compared to Republican orthodoxy, which means spend money and absorb the deficit as opposed to pretending that you’re fiscally conservative.” He was highly critical of the complicated financial instruments that have exacerbated the credit squeeze, saying the trend of over-leverage was a “dying concept” that would “lead to an implosion at the edges . . . of this new financial marketplace”. He also had stern words for hedge funds, describing them as a “con”. A hedge fund, he said, was “an unregulated bank. A bank isn’t a con but a bank is a regulated entity. A hedge fund is not . . . it’s been a con on the government in terms of their unwillingness to regulate the industry.” Mr Gross founded Pimco in Newport Beach in 1971, building it into a powerful bond manager that continues to operate from southern California. With California one of the first places to feel the effects of the subprime crisis, Mr Gross said, the company’s location alerted him early to the danger that has since wreaked havoc in world markets. Pimco switched out of mortgage-backed securities in 2006 and for the first half of 2007 fell behind its competitors. However, in the second half it has out-performed the market as Wall Street has racked up billions of dollars in subprime losses. He said: “I think we had the strategy correct for a good 12 months. It’s just that the markets and the economy didn’t come our way until the last six.”
@Lyle Burkhead Given the esoteric nature and exacting nomenclature of the subject, I often feel more like I am in fact parsing as opposed to just perusing “to read thoroughly”, which does also infer detailed analysis, semantics yes but I guess if one adheres to the generally accepted application it would be more technology or pure grammatically oriented. So I stand corrected. http://www.thefreedictionary.com/Parsing 3. a. To examine closely or subject to detailed analysis, especially by breaking up into components: “What are we missing by parsing the behavior of chimpanzees into the conventional categories recognized largely from our own behavior?” Stephen Jay Gould. b. To make sense of; comprehend: I simply couldn’t parse what you just said. I have posted on my opinion of the repeal ramifications of Glass-Steagal prior, and agree. In researching Ron Paul’s platform I believe you will find he is a proponent of “Free Market Capitalism” which implies less regulation but also “sound money”. Debt Based Fractional Reserve Banking is a tool of “Crony” Capitalism, along with Federal subsidies related to Big Oil, legislation such as NAFTA and CAFTA, the profits from which are used to advance the ideology of the Globalist agenda, which Paul well understands and is attempting to undermine. I believe he has a handle on the advantage that has been created here and is not likely to turn a blind eye to mitigating with regulation that which should not exist in the first place until such time as properly constructed Free Market forces reverse this inequitable evolution. The parallel currency path is part of this process of returning the nation to the Constitutional Republic and away from the Plutocracy it has become. I am careful not to underestimate the comprehension level of this Statesman, as he has opined, we are not fighting conspiracy but two competing ideologies. I believe each of which has its own merits. Cooperate Fascism, is loosely justified as a Meritocracy where those who advance to positions of power demonstrate the skill set necessary to lead and this would appear logical if it were not for the fact that the manipulation of the currency which is blatantly dishonest has led to a large part of the advancement. of this Globalist membership
The ECRI weekly leading index fell to a six year low today, levels not seen since the 2001 recession! Oh yeah, sorry I forgot, that doesn’t matter, stocks are up big time…
If memory serves me correctly you predicted that GDP in the 3rd quarter ’06 & 4th quarter ’06 would be 1.5% each and a recession beginning in 1st quarter 07. Westbury has predicted modest growth in ’08 but no recession. It will be interesting to see who is correct.
Latest from Peter Schiff, http://www.europac.net/newspop.asp?id=11164&from=home The real risk of course is that the Fed gets more aggressive as it realizes that the additional credit it is supplying is not flowing where it wants. If the Fed drops enough money from helicopters it will eventually reverse the nominal declines in asset prices. Unfortunately, that road leads to hyper-inflation and disaster. No matter what, even if the Fed succeeds in propping up nominal asset prices, they can do nothing to sustain their real values. Consumer goods prices will always rise faster, leaving the owners of those assets poorer no matter how high their nominal values climb. The big problem politically is that hyper-inflation may superficially appear to be the lesser evil. If asset prices are allowed to collapse, ownership of those assets will pass to our creditors. If instead we repay our debts with debased currency, we retain ownership of our assets and shift the losses to our creditors. Since American debtors can vote in U.S. elections and foreign creditors can not, the choice seems obvious. Of course there are some American creditors as well, but since they comprise such a small percentage of the electorate, my guess is that their losses will be seen as acceptable collateral damage.
By the way, ECRI’s weekliy leading index is now below th eworst level seen in Oct 1998 as well. Those who think this is 1998 all over again may be in for a suprise…
Bernanke Printing Press on Hyper-Overdrive to prop Stock Asset prices. – Dave C. Fed to hold special auctions ‘as long as necessary’ http://www.marketwatch.com/news/story/fed-hold-special-auctions-long/story.aspx?guid=%7BFBF127E0%2DA974%2D49C4%2DAFC0%2DD43E95B1ECC7%7D&siteid=yhoof WASHINGTON (MarketWatch) — The Federal Reserve said Friday it would conduct biweekly auctions of short-term funds for “as long as necessary” to alleviate a credit squeeze. The Fed auctioned $20 billion in 35-day credits at a stop-out interest rate of 4.67% in the auction held Thursday. A total of 73 banks submitted bids for $57.7 billion in the dutch-auction. The bid-to-cover ratio was 2.88. On Monday, the Fed auctioned $20 billion at 4.65%, with 93 banks submitting bids for $61.6 billion. The Fed has provided extraordinary amounts of short-term funds to banks to alleviate a credit crunch.
Notice the markets are once again fighting at 13,400 on the Dow and 1475 on the S&P…Rich knows why…
Gold market closed-time for Dow run to +400 for the day…
Dec. 21 (Bloomberg) — State and local borrowers are discovering that buying municipal bond insurance from MBIA Inc. and Ambac Financial Group Inc. is a waste of money. http://www.bloomberg.com/apps/news?pid=20602007&sid=aUinEIdJ4QBo&refer=rates On consumer spending: wp Consumer Spending Surges in November By Howard Schneider Washington Post Staff Writer Friday, December 21, 2007; 12:06 PM Consumers opened their wallets wider than expected as the holiday shopping season kicked off in November, boosting retail sales by the largest monthly amount in more than three years and helping Wall Street start the day on a strong note… http://www.washingtonpost.com/wp-dyn/content/article/2007/12/21/AR2007122100902.html?hpid=topnews And NYT: http://www.nytimes.com/2007/12/21/business/21cnd-econ.html?_r=1&hp&oref=slogin Despite a difficult decision ahead, central bankers could take some comfort in November’s strong spending figures. Consumer spending registered its largest increase in three years, compared with a 0.4 percent gain in October, though the uptick may only reflect the pre-holiday shopping rush. “The demise of the U.S. consumer has been exaggerated,” wrote Marc Chandler, head of currency strategy at Brown Brothers Harriman, in a research note, though another analyst suggested Americans are “buying on fumes.” Spending rose 0.5 percent in November when adjusted for inflation. Income levels also ticked up, 0.4 percent. Where is the spin? Earlier Thanksgiving? Soft September and October? Predicting the consumer slowdown is proving elusive. Professor, Will this affect your 0% GDP for Q4
Real consumption spending in November was better than expected after flat readings for September and October. What is this crap? You’re just making things up now. September real PCE was up .2% and October was up .1%
WSJ is reporting that the banks have abandoned the Super SIV plan. Seems there was a lack of interest.
Yesterday, the Toronto-based Globe and Mail reported that a Merrill Lynch recession probability indicator is now signaling a 100% chance of a U.S. recession within the next 12 months. ”Merrill Lynch, PIMCO: No Avoiding Recession” http://boom2bust.com/2007/12/20/merrill-lynch-pimco-no-avoiding-recession/
SIV fund offically dead.
Boom2Bust, doesn’t matter what the smartest financial minds say about a recession because stock say no recession and according to Greenspan, you don’t want to bet against all those intelligent day-traders! LOLOL
Stock rally when the SIV was created, they rally when it dies! RECESSIONS IN THE US HAVE BEEN ELIMIATED FOREVER!!!! WALL STREET HAS SPPOKEN!
@Boom2Bust.com I wonder what sort of indicator can say 100% chance of recession. If things get a bit worse will it say 120%? If I recall correctly, they had another indicator that was predicting a much lower probability of recession, in the 40-50% range. I don’t know what to make of all this. Do they think we will have a recession, or not, or they are arguing with each other?
“RECESSIONS IN THE US HAVE BEEN ELIMIATED FOREVER!!!!” Actually, history tells us, recession has gotten fewer and shorter.. One thing for sure, stock market will rally forever.
You might be correct in saying soon “RECESSIONS IN THE US HAVE BEEN ELIMIATED FOREVER!!!!”
Wake up people. The United States is in very grave danger. Take your head out of the sand. Read on…. Misreading the Iran Report Why Spying and Policymaking Don’t Mix By Henry A. Kissinger Thursday, December 13, 2007; Page A35 The extraordinary spectacle of the president’s national security adviser obliged to defend the president’s Iran policy against a National Intelligence Estimate (NIE) raises two core issues: How are we now to judge the nuclear threat posed by Iran? How are we to judge the intelligence community’s relationship with the White House and the rest of the government? The “Key Judgments” released by the intelligence community last week begin with a dramatic assertion: “We judge with high confidence that in fall 2003, Tehran halted its nuclear weapons program.” This sentence was widely interpreted as a challenge to the Bush administration policy of mobilizing international pressure against alleged Iranian nuclear programs. It was, in fact, qualified by a footnote whose complex phraseology obfuscated that the suspension really applied to only one aspect of the Iranian nuclear weapons program (and not even the most significant one): the construction of warheads. That qualification was not restated in the rest of the document, which continued to refer to the “halt of the weapons program” repeatedly and without qualification. The reality is that the concern about Iranian nuclear weapons has had three components: the production of fissile material, the development of missiles and the building of warheads. Heretofore, production of fissile material has been treated as by far the greatest danger, and the pace of Iranian production of fissile material has accelerated since 2006. So has the development of missiles of increasing range. What appears to have been suspended is the engineering aimed at the production of warheads. The NIE holds that Iran may be able to produce enough highly enriched uranium for a nuclear weapon by the end of 2009 and, with increasing confidence, more warheads by the period 2010 to 2015. That is virtually the same timeline as was suggested in the 2005 National Intelligence Estimate. The new estimate does not assess how long it would take to build a warhead, though it treats the availability of fissile material as the principal limiting factor. If there is a significant gap between these two processes, it would be important to be told what it is. Nor are we told how close to developing a warhead Tehran was when it suspended its program or how confident the intelligence community is in its ability to learn when work on warheads has resumed. On the latter point, the new estimate expresses only “moderate” confidence that the suspension has not been lifted already. It is therefore doubtful that the evidence supports the dramatic language of the summary and, even less so, the broad conclusions drawn in much of the public commentary. For the past three years, the international debate has concentrated on the Iranian effort to enrich uranium by centrifuges, some 3,000 of which are now in operation. The administration has asserted that this represents a decisive step toward Iranian acquisition of nuclear weapons and has urged a policy of maximum pressure. Every permanent member of the U.N. Security Council has supported the request that Iran suspend its uranium enrichment program; the various countries differ on the urgency with which their recommendations should be pressed and in their willingness to impose penalties. The NIE then highlights, without altering, the underlying issue: At what point would the nations that have described an Iranian military nuclear program as “unacceptable” agree to act on that conviction? Do they wait until Iran starts producing nuclear warheads? Does our intelligence assume that we will know this threshold? Is there then enough time for meaningful countermeasures? What happens to the growing stock of fissile material that, according to the estimate, will have been accumulated? Do we run the risk of finding ourselves with an adversary that, in the end, agrees to stop further production of fissile material but insists on retaining the existing stockpile as a potential threat? By stating a conclusion in such categorical terms — considered excessive even by the International Atomic Energy Agency — the Key Judgments blur the line between estimates and conjecture. For example, the document says: “We judge with high confidence that the halt . . . was directed primarily in response to increasing international scrutiny and pressure resulting from exposure of Iran’s previously undeclared nuclear work.” It extrapolates from that judgment that Iran “is less determined to develop nuclear weapons than we have been judging since 2005″ and that it “may be more vulnerable to influence on the issue than we judged previously.” It is to be hoped that the full estimate provides more comprehensive evidence for these conclusions. A more plausible alternative explanation would assign greater significance to the regional context and American actions. When Iran halted its weapons program and suspended efforts at enriching uranium in February 2003, America had already occupied Afghanistan and was on the verge of invading Iraq, both of which border Iran. The United States justified its Iraq policy by the need to remove weapons of mass destruction from the region. By the fall of 2003, when Iran voluntarily joined the Additional Protocol for Nuclear Non-Proliferation, Saddam Hussein had just been overthrown. Is it unreasonable to assume that the ayatollahs concluded that restraint had become imperative? By the fall of 2005, the American effort in Iraq showed signs of bogging down; the prospects for extending the enterprise into Iran were diminishing. Iranian leaders could have felt free to return to their policy of building up a military nuclear capability — perhaps reinforced by the desire to create a deterrent to American regional aspirations. They might also have concluded, because the secret effort had leaked, that it would be too dangerous to undertake another covert program. Hence the emphasis on renewing the enrichment program in the guise of a civilian energy program. In short, if my analysis is correct, we could be witnessing not a halt of the Iranian weapons program — as the NIE asserts — but a subtle, ultimately more dangerous, version of it that will phase in the warhead when fissile material production has matured. http://www.washingtonpost.com/wp-dyn/content/article/2007/12/12/AR2007121202331.html?nav=hcmodule
History sure does rhyme. http://www.house.gov/apps/list/hearing/financialsvcs_dem/testimony_-_kuttner.pdf
IRAN IS A MORTAL THREAT TO THE UNITED STATES! WAKE UP BEFORE IT’S TOO LATE!
Guest on 2007-12-21 15:37:39, Thanks for the intro which permits me to repost something composed last month. I would say that official recessions have become fewer and shorter, and that this has taken place within a long-run crisis of the capital system. A few bits of data: Annual real GDP growth in the world economy averaged 4.9% in the Golden Age years from 1950 to 1973, but slowed to 3.0% in 1973-92. Western European growth rates fell from 4.7% in the early period to 2.2% in the latter. Latin America’s growth averaged 5.3% from 1950-73, but only 2.8% from 1973-92. Africa grew at a 4.4% pace in the first period, but at a 2.8% rate in the second one. Asia was also the only major area not to experience a significant post Golden Age slowdown, maintaining growth between 5% and 6% for the entire era. We get the same results if we focus on the 1990s: World GDP growth averaged but 2.2% from 1990-98, the slowest growth of the post war era. Developed nations had an average GDP growth rate of only 2.1% from 1991-98. Latin America growth averaged 3.2% from 1990-97, marginally better than in the “lost decade” of the 1980s, but much lower than in the Golden Age. Africa showed GDP growth of only 1% a year from 1990-97. Asian economies grew by 6.5% from 1990-96, prior to the outbreak of financial crisis in that region. Other performance indicators, such as average unemployment and productivity growth rates, show the same pattern. OK,,, US GDP growth averaged 4.2% a year from 1959-73, but only 2.6% in the Neoliberal years from 1980-98. From 1990-98, growth was only 2.5% per year. Annual growth in labor productivity fell from 3.2% from 1959-73, to under 1.3% from 1980-98; it was 1.4% in the nineties. And the average US unemployment rate, which was 4.8% from 1950-1973, rose to 6.6% in 1980-98. [-Angus Maddison, Monitoring the World Economy 1820-1992 (Paris: OECD, 1995), p.60. -World Development Indicators 1999 (Washington, DC: World Bank, 1999), p. 4. -United Nations Conference on Trade and Development, Trade and Development Report (New York: United Nations), various issues. -Council of Economic Advisers, Economic Report of the President (Washington: United States Government Printing Office, 1999) In Crotty, 2000] The progressively greater shift into credit inflation driven finance and attendant building of bubbles has been a reaction to long-run, not just U.S. but systemic, decline which, at least for many in the developed nations, has been more less hidden behind the Casino’s flashing bright neon. If the now globalized credit structure with its generation of artificial demand breaks down, what has been a long-run ‘managed depression’ becomes perfectly overt. Much would have been avoided had the ‘managers’ stepped aside in 1979. Yes, the Volker Fed helped bring down the rate of inflation but this had most to do with salvaging bank capital’s rate of profit just as Reagan’s investment tax credits and accelerated depreciation allowances were meant to prop up industrial capital. The 1981 Tax Act was bailout through other means and added fuel to globalization. I get the feeling that we’ve run very low on, or out of, options…which doesn’t mean that even such as direct nationalizations won’t be attempted. From a more current perspective, lets consider 3Q07 GDP which, if I recall, was initially reported as 3.8 then revised to 4.9 percent, even though as Ritholz and others noted: ’Residential fixed investment, the GDP component that includes spending on housing, plunged by 19.7% in the third quarter (but Investments in structures increased 14.3%). Profits for the 3rd quarter flipped negative, dropping 8.5%. [C]onsumer spending falter[ed], with the crucial opening salvo of the holiday weekend down 3.5%. [S]econd-quarter wages were revised lower by $44.8 billion. [R]eal disposable incomes fell 0.8% in the second quarter, instead of rising 0.6% as the Commerce Department had previously reported.’ How could growth have been so strong? Easy. ‘Q3 prices saw significant increases, yet the price index deflator was a 9 year record low of 0.9%.’ By understating inflation, GDP is overstated and, from what I saw at the time should have come in around 1.1 percent, which is fully within ‘growth recession’ territory. But, how about all that supposedly strong employment? Well, turns out that the same BLS which provides the heralded monthly figures also publishes a more complete quarterly series, Business Employment Dynamics (BED). Or, from Yves Smith (5/30/07): this series reports detailed gross job gains and losses in the private sector based on nearly complete coverage “of the employment universe provided by the unemployment insurance system.” More painstaking than the familiar monthly surveys of employment, the tally is published with a lag of several quarters; the one released earlier this month, for example, was for the third quarter of 2006. What it showed, though, was eye-opening. Thus, compared with a gain for the quarter of 442,000 jobs reported in the so-called establishment survey, the Business Employment Dynamics, or BED, reckoning was a scant 19,000 additions. In manufacturing, the 9,000 jobs lost according to the payroll figures balloon into a loss of 95,000 jobs in the BED data; the improbable 20,000 additions in construction (think: housing) turns into a loss of 77,000 by BED’s measure; the 507,000 gain in private services shrinks to 108,00. And so it goes. Or, more accurately, so goes the job mirage. One likely culprit, Philippa and Doug suggest, is that curious concoction known as the “birth/death” model used by the Bureau of Labor Statistics to estimate the gains/losses in jobs from the launching and demise of businesses. Thanks to this voodoo calculation, 156,000 were added in last year’s third quarter and a hefty 388,000 in the opening four months of this year. Nice going, indeed, considering that first-quarter GDP growth probably, when the dust clears, will have fallen below 1%, and April was a punk month. All of which, among other things, solves a puzzle that seems to have bothered quite a few people: namely, how can the economy be running out of steam when there’s relatively little unemployment? The answer, pure and simple, is that there are significantly fewer folks working and significantly more folks out of a job than the official payroll numbers would have you believe. The next time someone assures you that the employment picture is bright, make sure he smiles when he says that. (emphasis added) As we have laboriously argued over the past few years, this has not been a great post-recession cycle for private sector job creation. It has been a boom time, however, for creative accounting in government measurements. The bottom line: New job creation has been mediocre, and wildly overstated by BLS since changes made to measuring jobs in 2001.‘ My oh my — overstating growth (and the above is not the only example); overstating employment; downplaying weak nonres investment; hyping so-called record profits even when, if properly calculated as a relation to total capital rather than GDP or national income, the rate has been low and anything but ‘record’ — I can only say that the U.S. has never in fact recovered from that ‘b
arely noticeable’ 2001 recession. The so-called recovery has, as we all should know, been almost perfectly a function of credit supported unproductive consumption, itself dependent on that which has ended, an extreme house price inflation and ability to monetize this. Uh, central banks to the rescue? Sure, but you see, the decades of financial deregulation and rise of non-bank banks as financial intermediaries, well, threw a big wrench right into the guts of central banks’ abilities to control anything, including inter-bank rates among members. Differently, counter-cyclic policy use has a lifespan. Theoretically, governments and central banks might overcome this but even within theory only at cost of internalizing it and a self-destructive internalization which could take down govts as well. NB that there is no global central bank, no real lender of last resort as, no matter the partnerings, every CB is a national entity which seeks to displace problems to others.
“”RECESSIONS IN THE US HAVE BEEN ELIMIATED FOREVER!!!!” Sounds a lot like “Stock prices have reached what looks like a permanent high plateau… I expect to see the stock market a good deal higher than it is today within a few months” Irving Fisher, Professor of Economics, Yale University, Oct 15, 1929
THE UNITED STATES IS A MORTAL THREAT TO IRAN! Per capita military expenditure in Iran is $92 compared to over $1500 in the USA. There is no question that the USA is a much, much bigger threat to Iran – occupying countries either side in Afghanistan and Iraq – than Iran is a threat to the USA. Iran has not attacked another country for over 100 years compared to the history of agression against many other nations by USA. On the other hand, those pesky Iranians are sitting on the second largest oil reserves in the world.
The USA has attacked and occupied the countries on either side of Iran. (Iraq and Afghanistan) This was supposedly for their support of terrorism and dictatorship. But there are many other countries that support terrorists and dictatorship that we haven’t attacked. If we were really after those who attacked us on 9/11, we would be looking at Saudi Arabia, where most of the hijackers were from. What Iraq and Afghanistan have is access to energy. And as Guest said, Iran is sitting on the 2nd largest stated reserves in the world. Who can blame them for wanting a bomb big enough to make us think twice?
Brian Wesbury’s commentary on the economy and markets will be one of the 2008 candidates for the “Can’t See The Forest Thru The Trees” Blooper Award, no doubt. Love the “ex-housing and banking, the economy’s booming!” comment….Hmmmm, yeah, oil and food/staple stocks are skyrocketing thanks to a 7-10% inflation rate here in the US…It’s ALL GOOD!! And this guy actually makes a living spewing such garbage to the public herd? Save the video, it’ll be priceless in due time… IMO
“RECESSIONS IN THE US HAVE BEEN ELIMINATED FOREVER!!!!” YES, IT’S TRUE! Unfortunately, I have to agree with the above statement (and Peter Schiff): ”However there are several key differences between then and now… In particular, the Fed’s ability to pump liquidity into the market in the 1930′s was limited by the gold backing requirements on U.S. currency. No such limitations exist today.” The actions of ECB and the Fed clearly demonstrate this new phenomenon. Mr. Roubini’s predictions have largely failed to realize because he has failed to understand this money creation reality. The Fed can literally wipe out our entire national debt by printing trillions of dollars at the touch of a button. No one will owe a penny, including all corporations and banks. The key to a recession, and the collapse of the economy, is not any of Mr. Roubini’s technical analysis and charts, which I respectfully believe are all wrong and outdated. The key will be when the U.S. currency eventually collapses due to devaluation, and when the rest of the world will see the dollar for what is truly is–a worthless piece of paper. Then we can neither export our dollars nor our debt, and import anything of value for that matter. The religious “Fatwa” against the dollar (in Saudi Arabia) is just the beginning. Until then the Fed has no reason to stop printing, and the economy and the stock market will continue to do quite well. I would not be surprised if the stock market hits 20,000 or so with all this new fiat money, even though admittedly it will just be a nominal increase. But does the public understand this? No, they don’t understand purchasing power, they just understand nominal value, which gets the politicians elected. This show could go on for several more years, and I wonder if we should all rethink the doom and gloom from this board for the foreseeable future, and make investment decisions accordingly without getting ahead of ourselves.
Slumlord on 2007-12-21 16:16:54 Wow! Many thanks for the great link. A must read.
INSIDE VIEW: Rate Cut Emerges As Option For BOJ TOKYO (Nikkei)–Although the Bank of Japan left its monetary policy unchanged Thursday, the possibility that it may cut interest rates is becoming increasingly real in light of growing uncertainties over the economic outlook. http://www.nni.nikkei.co.jp/ What is left to be cut?
Professor, You may be a serious economist but your blog is followed by a bunch of survivalists and kooky anti-government Peter Schiff followers.
J. on 2007-12-21 16:35:47 Many thanks for another great post! I truly enjoyed reading it!
Heads up. Wall St. lying about security values. SEC is investigating… NEW YORK (Reuters) – U.S. regulators, led by the Securities and Exchange Commission, are probing how financial firms priced mortgage securities on their books and whether they should have told investors earlier about the declining value of those securities, The Wall Street Journal reported on Friday. The SEC is examining UBS AG and Morgan Stanley, in addition to previously reported investigations of Merrill Lynch & Co Inc and Bear Stearns Co Inc, the Journal said, citing people close to the situation. The SEC has set up a working group to tackle some three dozen probes, which are in their early stages, the article said. Regulators are also looking at whether the Wall Street firms put higher values on their own securities than on the ones they assigned to customers’ holdings, the Journal reported. The SEC has specifically spoken to a trader at a now-defunct hedge fund of UBS’s Dillon Read unit and a trader from Royal Bank of Canada following his assertions in the Journal that the bank had intentionally mismarked government agency and corporate bonds, the newspaper reported. The regulators are also probing whether Wall Street firms should have moved some off-balance-sheet entities holding mortgage securities to their books earlier, the Journal said. Representatives for UBS, the SEC and RBC were not immediately available for comment. http://biz.yahoo.com/rb/071221/subprime_regulators.html?.v=1
Guest: “You may be a serious economist but your blog is followed by a bunch of survivalists and kooky anti-government Peter Schiff followers. “ Well, let’s look where we wound up at the end of 2007. And keep in mind, lots of “perma-bulls” said the Dow would be heading to 20,000 by this time. * Many of our US largest investment banks are now insolvent, if they were to mark down all their assets to actual market values. Right now they are scraping by – by bending the rules, pretending the assets are worth more, and passing off their worst debts to the Fed as collateral. Consider this. Suppose you went down to your local bank and offered your current used car as collateral on a loan – but you insisted the bank give you full value if it was brand spanking new. How far would you get? * Tent cities are starting to spring up on the edges of US towns, and even in some cities. These are people made homeless by foreclosures. Yet at the same time, Wall St is preparing to pay itself many billions of dollars in Christmas bonuses. Billions. A paltry bonus of $20,000 is considered an insult. But … don’t some of these very same people work at the banks and brokerages that are actually insolvent?? * Our banks don’t trust each. In fact, since they all know that their mortgage-based assets are nothing but a shell game, they are not even willing to trade with each other in the money markets. * Real inflation is running at probably 8-10%, but the Gov’t is claiming only 2-3%. This is putting Americans on fixed incomes in economic distress. Right now one category of people who are going bankrupt the fastest in the USA are people over 65 years of age. But these are the same people who worked in their youth to make America a strong country. They didn’t create massive Gov’t deficits. In fact, they worked hard to try to avoid them. The America that you see today is a far cry from the America that existed even 40-50 years ago. Under the current trend, our middle class is going to be slowly but surely eliminated. And many of our citizens will be working for foreign bosses. Is this “freedom and opportunity for all?”. Sadly, the people in charge of our country are figureheads and aristocrats. We have no real leaders any more. And these words … from someone who tries to keep a balanced view of things. PeteCA
PeterCA – It is obvious from the news of the past few days that both consumer spending and corporate spending are strong. The numbers that you cite are not supported by facts. I don’t believe any of your statements. What are the chances that November consumer spending was so rubust, but as the Professor claims, it fell off the cliff on December first? No chance. The Professor is a perma-bear, no better than the perma-bulls. You are on your own trying to figure out where the economy is headed.
PS He says the same thing every month about consumer spending.
Guest Please see the data I posted in the last session of the blog. Consumer spending may seem to be temporarily up – but that’s because people are piling extra debts onto their credit cards. I was just at the mall in So Cal tonight. Usually at this time, it’s impossible to get into a lot of the stores. They are just too crowded. Right now it’s actually not that bad – I can walk around just fine. People are shopping, but selectively as I said earlier. Retail in Dec is going to be down (YOY compared to 2006). We’ll see where consumers wind up in Q1 of 2008. Rising deliquencies in personal credit look like a real possibility. PeteCA
PeteCA Time for another cocktail, Pete! Season’s Greetings.
My very best wishes for the Christmas season to all the readers on this blog. I hope your families have a happy and safe holiday season. Special thanks to the many commentators who have brought diverse viewpoints and valuable data to this discussion. That has been a terrific contribution! I look forward to more of the same next year. Prof Roubini – great job with the blog this year. You took on a tough job when you advocated recession for an economy that had come through one of the longest spells of an unbroken climb on the Dow. Calling a recession is a very tough thing to do … and I think you advanced your arguments thoughtfully. I may be lucky and get a chance to “dial in” to the blog over the next week. But otherwise, I’ll see you all in Jan. Time to take Giraf’s advice and have a cocktail PeteCA —————————————————————–
$VIX sorta broke down today. $GOLD should be trying a break out next week. 10 and 30 yields moving up off higher low. NR, you are wrong. no recession. for god sake, burn your degree and resign as economist. two years of recession not getting right is just too insane.
I suggest Guest and Giraf buy as much stock on margin as they can afford. Take out a HELOC, if you haven’t already, and buy stock. Show those bears your conviction in this mother of all bull markets. Don’t wait, buy Monday.
“* Our banks don’t trust each. In fact, since they all know that their mortgage-based assets are nothing but a shell game, they are not even willing to trade with each other in the money markets. “ true, that is why they have to go to FED for money. well, may be this time is different. banks don’t have to trust each other. they just need to borrow from FED. hey, FED keep the discount window open and wide.
Peter Schiff is wrong. The Fed can lend all the money it wants to the banks, but it cannot make the banks LEND the money. Consumers are unable to take on more debt. Read Ben’s helicopter speech from 2002, where he states the dollar has only value to the extent it is limited in supply. By increasing the dollars in circulation (by buying assets from banks and private parties), it can avoid deflation. But here is the problem: who has the ability to borrow any more? Consumers and corporations are cutting back. Banks don’t want to lend, consumers are too broke to keep borrowing. So how will the Fed get money into people’s hands? The only way I see, is a big tax cut. But that is not enough. But that is going to make it even worse for the government. California is already facing a budget shortfall and declared a fiscal emergency. Does anyone know how the Fed can get the money into people’s hands? I think we are in recession already. Cities in the San Diego area are already cutting their budgets, due to lower sales tax. So we know spending is down. That is a fact! Nice interview on Kudlow!!
“But here is the problem: who has the ability to borrow any more? “???? Are you saying no one is borrowing from FED? quite contrary, alots of banks borrowed from FED. at least 40billiion+. not only they borrowed from FED. they borrowed from foreigner. trust me, no one can refuse cheap money. the only thing matter, is there anyone willing to lend, yes that will be FED.
http://www.enn.com/ecosystems/article/27935 Inflation: When China *really* starts buying rice and other grains from the markets to offset starvation (political security) Inflation (global) will rapidly rise from today’s ~20% to beyond. Happy Xmas to all, PeterJB
Octavio Richetta on 2007-12-21 18:48:10, Thank you, I guess it’s evident that context is important to me, sometimes too much so but at least that perpetuates the beneficial tensions between determinism and the uncertainty of possibilities. Please have a good holidays
Prof, I have to say that – Morgan, Goldman, Lynvch and all maybe just “predicting” a recession to pressure the FED into more rate cuts… Dont be fooled by their charade… consumer and unemployment is holding up.. profits are also holding up… where is the fire?.. the data maybe backward looking but forward looking ones will have a huge margin of error (from the interview i gather its -2% to +4% gdp)… perhaps.. the risk of recession does not come so much from slowdown of consumers spending but from the banks themselves… mrskeptical
Slumlord on 2007-12-21 16:16:54 This should be a relevant follow up to your Kuttner link. http://www.nytimes.com/2007/12/18/business/18subprime.html?fta=y
Hi folks, I found a book on Amazon that could be of interest for folks in this forum… ”WEB OF DEBT: The Shocking Truth About Our Money System — The Sleight of Hand That Has Trapped Us in Debt and How We Can Break Free” http://www.amazon.com/WEB-DEBT-Shocking-Sleight-Trapped/dp/0979560802/ref=sr_11_1?ie=UTF8&qid=1198321729&sr=11-1
Barron’s cover this week (if a bit too late) deals with the rating agency monopoly: http://online.barrons.com/article/SB119809206941640049.html?mod=9_0031_b_this_weeks_magazine_main ($) Failing Grade By JONATHAN R. LAING THOUGH WALL STREET WAS SLOW to realize it, July 10 turned out to be Pearl Harbor Day for the global credit markets. On that day, credit-rating giants Moody’s (MCO) and Standard & Poor’s both shocked investors by announcing separately that they were taking negative rating actions against nearly $20 billion of 2006-vintage subprime-mortgage bonds because of spiraling delinquencies and foreclosures on the loans. The credit downgrades have only increased since then, with Moody’s alone chopping the ratings on more than half the 2006 subprime residential-mortgage-backed securities it had rated, including a whopping 97% of the slices, or tranches, it deemed single-A or below, according to a compilation made by Morgan Stanley Fixed Income Research. Even worse has been the stunning speed with which the ratings agencies have acted. Investors in some $800 million of asset-backed commercial paper in Rhinebridge LLC, a bank-sponsored structured investment vehicle, or SIV, filled with U.S. subprime debt, suffered whiplash when the paper and related medium-term notes swung from S&P’s highest credit ratings to default in four days in October. And this followed a Moody’s report in July titled “SIVs, An Oasis of Calm in the Sub-Prime Maelstrom.” Such precipitous ratings declines have come to be known as express-train downgrades, since there are no stops between Blue-Chip Land and oblivion. All of this has landed the credit-rating agencies in the crosshairs of Congress, the Securities and Exchange Commission and several state attorneys general, just five years after the industry was taken to the woodshed for its failure to suss out the impending collapse of companies like Enron and WorldCom. That spasm of reformist zeal resulted in the 2006 Credit Agency Reform Act — but the law clearly didn’t go far enough. That’s why Barron’s now proposes some fresh and far-reaching measures to fix the rating system, starting with steps to greatly increase competition. Moody’s and Standard & Poor’s have held far too strong a grip on the industry for anyone’s good. It is high time for a change. …
I good critic of Greenspan by Epstein http://online.barrons.com/article/SB119808591594639795.html?mod=9_0031_b_this_weeks_magazine_columns Study History, Mr. Greenspan By GENE EPSTEIN CAN FORMER FEDERAL RESERVE chairman Alan Greenspan be blamed for the current crisis in mortgage debt? The question is like asking whether the recently departed Mafia lord in charge of pushing drugs might be responsible for the fact that a lot of folks got addicted, and eventually overdosed. …
@Bender on 2007-12-21 22:34:30 SDS on margin is probably a good bet!
To PeterCA – Have great holiday as well. Time will tell soon if you are right. Consumers are clearly still spending and consumer credit is widely available. I suspect that eventually we will have the credit card defaults that you envision but maybe not for a long time. Credit card lending is alive and well.
Although I am no economist, but I think restaurant business tells you a world about the current state of the economy. If you are feeling financial stress, you start cutting back first with luxuries like eating out. http://biz.yahoo.com/ap/071220/apfn_casual_dining_sector_snap.html?.v=2
I should have included Darden restaurant chart this week (olive Garden, Red Lobster, etc.). The consumer (70% of our economy) begins to fall… http://finance.yahoo.com/q/bc?s=DRI&t=5d
You don’t need me to tell you that you are right, but I do have a quibble with the “suckers’ rally” explanation of the strength in the stock market that you introduced on the Kudlow show. The strength in all the “safer” markets, bonds, stocks, commodities, even currencies is a demand side phenomenon. I wouldn’t put my own money on the bet, but it looks to me that this will be the first significant recession where the markets don’t tank. That is, the stocks aren’t worth much, but there is a need for some place to invest in real stuff that may be safe from inflation. In its own way, stocks could be considered a leading indicator of inflation, rather than, as usual, a leading indicator of recession.
@Octavio Richetta Thanks
Ambrose Evans-Pritchard quoting, Peter Spencer, chief economist for the ITEM Club: ”The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard.They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don’t think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park.” E-P later adds: The risk is a Japanese denouement across the Anglo-Saxon world and half Europe.
“how can the economy be running out of steam when there’s relatively little unemployment? The answer, pure and simple, is that there are significantly fewer folks working and significantly more folks out of a job than the official payroll numbers would have you believe” I Agree with you there is something strange about US Economy. By shrinking interest rate the FED want to avoid a recession. But in the meantime the dollar fall. It’s normal. If the dollar fall it would be easier to export for US company. If your currency is too strong you have too much people unemployed because of you strong currency, soo it’ difficult to export. But USA has a very low jobless rate, so I don’t understand which people could be more employed (to export more) if almost everyone is already employed. And to export more USA need to invest more. But now save rate are at 0%. So USA need foreign money. But foreign investors have stopped to invest in USA since Fall. see the Brad Setzer post.
What amazes me is that Crudlow would actually invite someone to appear on his show who really knows something. Most cable news/economy shows use hacks that the channel already has hired and is paying for and who don’t need to know much of anything.
How good is the economy? Ask Circuit City or CompuServ. The Fed injects money into the economy and lowers rates, and things just get worse. Sure, the stock money is just fine, but when it loses it’s foundation of corporate entities making big money, all the government directed manipulation in the whole world won’t save it from hard times. And what is the condition of the Bond market? (What bond market? There isn’t any!)