Bad News Coming in Bunches, With No Let-Up in Sight 17 comments
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It's said that bad news, like late-night buses, comes in bunches. That certainly seems to be the case this week, where a few days of lethargy have been punctuated by a firestorm of fresh Armageddon-fodder over the past twenty-four hours.
Where to begin? Macro Man has to confess that he may have overestimated the market nous of equity punters, given that news of the auto bailout failure served to catalyze a jump lower in stocks. Is it really the case that a Big Three bailout was supporting the market? It boggles the mind, given a) the small size of both the bailout and the market cap of the auto sector, and b) the abject failure of the TARP to buoy stocks since its eventual passage in October. Crikey, if $350 billion for the industry at the heart of the economic and financial maelstrom has failed to support Spoos, why did these donuts expect $14 billion to Obsolescence-R-Us to be a rationale for buying stocks?
More sinister is the Bernard Madoff situation, which serves as another poisoned dart striking at the heart of financial system credibility. Now, Macro Man had never heard of Mr. Madoff until a few hours ago, and neither had just about everyone that he speaks to. But the staggering size ($50 billion) and nature (bald-faced fraud) of Madoff's failure serves as a timely reminder that there are still plenty of rotten apples in the market's fruit basket. Then again, Madoff's sin - taking a relatively small amount of investor capital and levering it up via an investment strategy that had no prayer of long-term success - sounds awfully similar to the investment banking business model of the last few years. Perhaps Madoff should convert to a bank holding company and apply for a bit of sweet TARP lovin'?
More prosaically, the economic dataflow remains uniformly awful. Yesterday's jobless claims data suggests the labour market continues to deteriorate, which probably shouldn't come as a surprise to anyone with Internet access and a fifth-grade reading level. More troubling, however, were a couple pieces of bigger-picture data that have helped guide Macro Man's core views.
The US flow of funds data were released yesterday, and they were a shocker. US household wealth is now falling at the sharpest rate in the history of the series (which covers most of the postwar era), superseding the collapse of the dot-com bubble. Unlike 2002, however, there are no further bubbles to inflate to save the consumer's bacon. The confluence of collapsing wealth and a terrible labour market form the crux of what has been Macro Man's base-case view for the past couple of quarters- a bone-crushing, consumer-led recession.
A natural outcome of this view has been an expectation that US savings rates would rise (which they are starting to), global trade volumes would decline (which they are), and that the US trade deficit would contract sharply, thereby supporting the dollar. Here's where we run into a spot of bother.
While it's not Macro Man's style to jettison a core view on the basis of one data point, he must confess to being troubled by yesterday's US trade figures. Rather than narrowing, as he expected, in October, the trade deficit actually widened slightly, despite the collapse in oil prices. Indeed, exports declined more in dollar terms than imports, despite being a much smaller percentage of overall trade. That's not what Macro Man wanted to see.
Indeed, the deficit excluding petroleum seems to be widening back out thanks to the drop in exports. Could it really be the case that US exporters failed to hedge any futures receivables when EUR/USD was above 1.50? Macro Man isn't sure what to make of this, but it wasn't part of the game plan.
Nor, indeed, was a smooth money-market passage into year-end. Instead of squeezing higher, as has been the case over the past few quarter-ends, LIBOR rates are actually coming in hard.
Hmmmm. If the US trade deficit fails to narrow and there is no further funding pressure, two of the major supports for the dollar will have been taken away. Certainly the market is rendering this interpretation, as EUR/USD appears to have broken out of its little trading range of the past couple of months.
Of course, an alternative explanation is that it is December, liquidity is appalling, and some punters have decided to have a go at pushing the dollar lower with little to no opposition. Macro Man requires more data before he can render judgment on whether the dollar bull case has evaporated (though he remains highly dubious of the notion of EUR as a store of value), but he's seen enough to encourage him to flatten what modest exposures he's got.
Some of the moves he's seeing make little sense to him, and he's happy to run very little FX directional risk until the new year. No news is sometimes good news, as they say...especially when it comes on the stop-loss front.
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This article has 17 comments:
Evidently, many believed they could sell assets that were only a concept and the debt never had to be paid back were delusional.
Eight percent of 200 million is 16 million.
The whisper number that includes the people not counted or those that have given up is about 13 percent
Thirteen percent of 200 million is 23 million.
I think that unemployment is about 20 percent.
Twenty percent of 200 million is 40 million.
Now lets put that into dollars and how it affects America and how it Affects our retailers, manufacturers and raw material producers
Using an average salary of 50,000 dollars
16 million people out of work would take 800 BILLION out of the economy, of which 240 BILLION would be taken from your town, your county, your state and your countrys budget and 560 BILLION would be taken from our retailers, manufacturers and raw material producers
23 million people out of work would take 1 TRILLION 150 BILLION out of the economy, of which 345 BILLION would be taken from your town, your county, your state and your countries budget and 805 BILLION would be taken from our retailers, manufacturers and raw material producers.
40 million people out of work would take 2 TRILLION out of the economy, of which 600 BILLION would be taken from your town, your county, your state and your countries budget and 1 TRILLION 400 BILLION would be taken from our retailers, manufacturers and raw material producers.
Now do you see why GM is having a tough time making ends meet ?
And no amount of bailouts are going to solve the problem.
It will take jobs.
It will take our political and corporate leaders waking up and realizing that their insistence on sending our jobs overseas is destroying the whole world's economy.
Why the whole World's economy ?
Because American consumers are the biggest spenders in the World and they want things and as long as they have money, they will buy these things.
A lot of them are made in other countries.
So when the American consumer has to stop buying because they no longer make what they used too, the trickle down effect, affects the whole World.
Right now, our experts and our political and corporate leaders are in denial.
They say that what is good for them is good for America.
We need to work together to get them to see what they are doing to America and the rest of the World.
If we can't do that, we need to use our vote and get somebody in there that will put their town, county, state and country first.
Virgil
www.KeepAmericaAtWork....
The situation wouldn't be so bad if American consumers spent only as long as they had the money. Too many spent as long as they had credit available, however.
I feel that the markets are relying too heavily on government hand outs, which will cause bigger problems in the long run ... these hand outs are removing the risk of failure from inefficient business models. We can lay the blame at any door (unions for bloating up manufacuring costs, or management for inept planning and foresight), but in the end, it is the middle and lower income groups that will suffer and carry this burden.
Easy credit, glossy and slick advertising, the promise of a grand lifestyle, the desire to keep up with the Joneses and taking the future for granted ... hopefully some sense will return to the consumers.
It has already been proven through the twentieth century Russian, Eastern European, Chinese, Indian, and miscellaneous Third-World experiments that "centrally-planned" economies are less efficient than market economies.
It will prove difficult to reduce the role of government in the economy once it expands to the level needed to provide the anticipated short-term relief, so that once again, we are in the process of sacrificing the long-term in favor of the short-term.
Sadly, we have self-interested, fraudulent, incompetent, ignorant boobs running our government and private sector. 95% of them are just crooks.
Unless the American public's apathy turns to empathy and we demand better than we have we are doomed to disintegrate into a bankrupt 3rd world country.
Ha! Good one, Macro Man.
Gee, could that have anything to do with the US dollar rising 25% in the last few months?
"And no amount of bailouts are going to solve the problem.
It will take jobs.
It will take our political and corporate leaders waking up and realizing
that their insistence on sending our jobs overseas is destroying the
whole world's economy. "
Correct, but...
The real reason our jobs get shipped overseas is that they can be done a lot cheaper over there (or over here, by illegal immigrants -- construction used to be good-paying work in the US). The only cure for that is a major reduction (devaluation) in the value of the dollar. Until then, US labor is just not competitive in the world market. We can't keep borrowing $750 billion a year forever to make up the difference.