Blair Dehuff

U.S. Economy: One Green Shoot + A Mixed Bag

Steven,

Forget Wall Street. If there is little recovery on Main Street, there is no recovery. Also, growth requires CREDIT. There isn't any (or very little of it anyway). Credit is still contracting, which is not the sign of a recovery or a good omen for potential growth. Banks are giving only lip service to this issue, pretending they will loosen up (as a public relations ploy to head off some of the bashing they are getting in public opinion). However, they are happy just making money off of Uncle Sam's money, and paying near 0% interest on bank accounts. This is ZERO risk and will continue as long as the FED keeps rates stay where they are. Why would any banker in his right mind want to take on more risk on dodgy consumers and and small businesses when they can make money with zero risk, and not have to worry about writing off even more bad debt than they already have?


On Dec 13 06:29 PM Steven Hansen wrote:

> Let us look at GDP associated with the 2001 recession:
> 1Q 2001 -1.3
> 2Q 2001 2.6
> 3Q 2001 -1.1
> 4Q 2001 1.4 quarter recession ended
> 1Q 2002 3.5 first full quarter after end of recession
> 2Q 2002 2.1 first full quarter of non-mfg growth
> 3Q 2002 2.0
> 4Q 2002 0.1
> 1Q 2003 1.6
> 2Q 2003 3.2
> 3Q 2003 6.9 first full quarter of jobs growth (mfg + non-mfg)
>
> 4Q 2003 3.6
> 1Q 2004 2.8
> 2Q 2004 2.9
> 3Q 2004 3.0
> 4Q 2004 3.5
>
> Everything is relative. our strong growth in 2001 began when employment
> went positive. Not many are saying we will not have jobs growth
> early next year (note until jobs growth expands to the population
> growth rate unemployment theoretically grows).
>
> our recovery curve (measured by GDP) seems will be stronger than
> the last recession. one obvious reason is that we fell further this
> time - and the post recession inventory stabilization effect will
> be more pronounced.
>
> Joe 6-pack will see few positive effects coming out of this recession.
> High unemployment, no return on savings, poor housing market. Wall
> Street however, already is feeling the effects of recovery.
>
>

U.S. Economy: One Green Shoot + A Mixed Bag

Steven,

If population growth accounts for 1% - 2% of GDP, and the forecasted GDP for 2010 is only 3%, then I agree this is anemic "growth" at best, or not really growth at all as you seem to suggest. You indicated that exports are the only bright spot - the only "driver" we have going for us. I guess this is the only plus of such a weak $.

We currently have a "jobless" and non-consumer driven "recovery" in an economy which depends 70% on the consumer - who is in dire need of a job. The only real job creation going on is in Government employment, which is non-productive. So, what will save a consumer driven economy where there is little private sector job growth, and in which lenders won't lend even to people with jobs (who don't want to buy anyway)?

This is deemed to be a stronger recovery at this point than after most recent previous recessions? Somthing doesn't add up here. What am I missing?

I guess we better hope that exports to emerging markets will pull us out of our tailspin, because I just don't see what else which is going to help us. Or, am I missing something?

Economic Data: Let’s Go Spin Some

Steven,

Since we are on the subject of economic data spinning and book baking by the Federal Govt., I'd be interested in your take on the "reverse-repo", which apparently seems to be a new way of cooking the books to make it look like the Fed is draining liquidity from the system, when they actually aren't. As I understand it, the govt sells "securities" (aka unwanted trash) with the promise to buy it back at some point for a slight profit to the buyer.

WTF! Is this correct? The Feds are actually advertising this? I'm really mystified as to how this sops up any liquidity? Isn't this just another form of playing games with numbers?

Economic Data: Let’s Go Spin Some

Steve,

Thanks for sifting the shit in BLS. Like many routine government studies and reports which cost tax payers loads of money, BLS contains a mixture of conflicting "information," raw data, and split hairs more apt to confuse than enlighten. I'm sure slogging through it and coming up with really logical conclusions isn't an easy task.

Thanks again.

Holiday Boom or Economic Doom?

Steven,

Thanks for explaining the Zero Interest Rate Policy.

ZIRP also stands for Zero Income for Retired People, or Zap Impoverished Retired People (take your pick). According to AARP, Social Security is the "main source of income" for fully a half of all retirees. Now, Bernanke is making it their ONLY source of income with his protracted ZIRP. Ben has been called many things, however "Beneficent Ben" is not one of them (unless you're a banker).

Actually, ZIRP doubles as the Government's stealth program to reform Social Security and Medicare. You see, old people who can no longer afford food or meds quickly die off. They stop drawing Social Security and using Medicare. Presto! Problem solved.

My pathetic attempt above at gallows humor aside, according to AARP seniors are (or were) one of the most important sources of discretionary spending for the economy. Not any more. People who have very little income and no prospect of getting more stop spending money on anything but necessities. If you are worried about having enough to eat for what's left of the rest of your life, you don't go out a buy flat screen TV's. Many seniors take only a weekly trip to Walmart for food and meds, and that's it.

I guess this is one of the "unintended" consequences of ZIRP. Make that "counterproductive" consequences. Seniors are by far not the only ones impacted by bank accounts which earn nothing. However, they are probably the most vulnerable. Very few of the 1/2 of all retirees who live strictly on Social Security can afford to help stimulate the economy.

Thanks Ben, your ZIRP is really working wonders.

Show Me Economic Expansion, Chairman Bernanke

I just wish Bernanke would stop saying he supports a "strong dollar." Everyone is laughing at this, even though the joke isn't even funny anymore (although I'll bet the Chinese stopped laughing a long time ago).

I think the jury is still out on weather we will have a "W" shaped "recovery" or an "L" (the "V" and the "U" are out). If we are looking at an "L" recovery, it will be with a faint blip every so often -- kind of like the heart monitor on someone who's not quite dead yet. Residential Real Estate is on life support, with an extension of the $8000 first time buyer credit (+ $6000 for second time buyers thrown in this time around). Unemployment will be double figures for another 12 to 18 months, but even people with jobs are still not in a buying mood.

Seems "recovery" has been redefined to mean things overall are no longer continuing to get worse (although that may not be very true of commercial real estate, and even residential sales and prices are still falling in many parts of the country).

Let's face the fact that the Federal Government has so far been unable to bribe people into spending money again, except for "cash for clunkers" and first time home buyer credits. Every time a Fed govt. program ends, things stop. Unless average Joe decides he's going to start spending again without government bribes, there is no real recovery in the cards.

In truth an "L" is not really a "recovery". It only means that things will bottom out ---- and then stay there for one heck of a long time. Bernanke says that interest rates will stay low for "an extended period of time." Maybe he should be more honest and say "forever."

Who Thinks This Recession Is Over?

Government economists seldom say things which are very relevant to the average person on Main Street. The officials in Washington want average Joe citizen to start spending money again, as though things have returned to "normal" by pronouncing an end to the recession. It's their hope that enough people will resume spending enough money soon enough to avoid (by officialdom's yardstick), a "double dip" recession.

Fact is, recessions are regional and relative. A recession can be severe in one place (like Michigan where it's more like a depression) while at the same time very mild in other places. Some cites in the US have seen "campgrounds" of newly homeless spring up (e.g. Sacramento, CA), while other cities seem to be doing quite well in spite of higher unemployment (e.g. Raleigh, NC).

I went the a large regional shopping mall one weekday recently (near Raleigh), and it was hard to find a parking place. I thought "what recession?" Although no one seemed to be buying the high end stuff yet, they were snapping up lots of stuff marked down by 50% to 75%. Truth is prices have gone down (a lot), and I think the stores are still feeling the recession more than some of the consumers. Many stores are just trying to do whatever they can to keep their doors open, and owners would ask: The recession has ended?

Jobless Recovery Can Be Avoided

Mad Hedge>

Buchanan International Airport? Besides flying over a tent city, do you also still fly over a driving range? If so, be careful of those high pop-fly golf balls on takeoff and final approach. (Haven't been there for years).

But, seriously do you think silver will stay where it is for very long if there is in fact no "real" recovery anytime soon? (Forget about the jobless, spend-less kind). I think the long term fundamentals for PM's are good, but how about the short term (next 1 to 2 years)? Some PM newsletters are pretty negative about the short term.

On Sep 15 03:12 PM Mad Hedge Fund Trader wrote:

> qqt Fed chairman Ben Bernanke say the recession is “technically”
> over. This will be great news for the people living in the tent city
> under short finals who I fly over when I land at Buchanan airport.
> It means “technically” they will eat tonight. It will also be welcome
> to the 18% of the workforce who are now unemployed in California,
> the 1.5 million who are losing unemployment benefits in the next
> three months, and one million college students who ran up and average
> $30,000 in debt to graduated this year so they could sleep on their
> parents’ sofa. Traders celebrated the news by running the S&P
> 500 up to 1,054, a positively nose bleeding 58% above the March 9
> low. Apparently, the stock market thinks Obama is the greatest president
> in history, rising some 40% since the inauguration, compared to a
> 30% drop during the eight years of Bush rule. That is some report
> card. Too bad we can’t annualize that. The only thing I approve of
> today is that this love fest took silver to a new high this year
> of over $17. Wake me up when the party is over, and I’ll drag your
> drunken carcasses into the car and drive you home. Then I’m going
> to cash in a couple of my sliver dollars and take my significant
> other out for a Corona and some vegetarian burritos.

Jobless Recovery Can Be Avoided

A "spending-less" and "jobless" recovery is an absurd concept that only a government official could dream up. The key to recovery is the consumer, and consumer spending is has fallen OFF A CLIFF. It has fallen for 4 of the last 6 quarters, which is something that has never happend before since they began keeping records in 1947. Consumer spending is down 33% from a year ago, and discretionary spending in the U.S. is now down to the lowest level in 50 years.

Government numbers crunchers claim that spending is actually "up 2 1/2%." However, this doesn't really fool anyone because everyone knows this is only temporary government "stimulus" spending. Does anyone really believe Cash4 Clunkers is leading the way into recovery?This is like saying a terminal patient is recovering because you gave him an aspirin.

If this is "recovery", let's hope we don't get much more of it.

Consumer Credit May Drive Our Recovery

We keep reading a lot about a "jobless recovery." How is THAT going to work? Don't people need jobs before they can start spending again? It makes about as much sense as a "credit less" recovery, which seems to be what the FED is somehow expecting. In the short term (the next year or two) the amount of private debt still won't be paid down fast enough to get people to start borrowing again, even if they want to (a big If), and that's IF the banks will let them -- an even bigger if. As Steve points out, Boomers are unlikely to ever start borrowing again as they did in the past, unless some new credit products are invented which give them access to credit they think they will never have to pay back. Other than more innovative reverse mortgages, it's hard to imagine what such products would be.

In short I don't really see how a jobless recovery is supposed to happen, especially when consumer credit is still not flowing.

On the other hand if Wall Street can package up Pet Rocks to sell them off as bonds, I suppose anything else can happen too. Maybe it will be a smoke and mirrors "recovery" supported by lots of phony data and cooked books.

What if It Is a 'V' Recovery?

If the consumer is 70% of the economy, then where is the "recovery" coming from? Jobs are still being lost, there are 6 applicants for every job opening, personal bankrupts are increasing, credit cards still tapped out, banks won't loan money to anyone, HELOC's are being pulled by banks, mortgage defaults INCREASING (not decreasing) among prime borrowers, etc. Added to this is the fact that banks will continue to hoard cash for a LONG time. All those toxic assets are still on the books, and commercial real estate is now falling off a cliff which will add a lot more write downs.

IF the definition of "recovery" means things are still getting worse just a little more slowly, then I guess (maybe) we are in a recovery. However, if recovery means that most indicators relevant to the consumer are starting to point UP, then we are not in a recovery headed for V, L , W or any other letter of the alphabet.

Economic Crisis: Ready for Round Two?

One of your best, Steve, and it really should be an editor's pick. I hope it's ok I linked your article to some message boards at Yahoo Finance.

Poisoning the Green Shoots

Steve,

As you noted, one major poison in the system is CEO's who ignore the long term health of the company, and instead focus mostly on current quarterly results and pumping up the stock price. How do we incentivize CEO's to take a long term focus?

Of course, there are many nowdays who would argue that we need poison to fight the poison. Rat poison for CEO's who are paid way too much to care about the company (as in CEO's who get paid 400 times the average worker's salary). When you give CEO's millions in company stock as part of their compenstation, that only reinforces their short term focus and increases their motivation to pump up the stock price, even if it means fudging the numbers.

Maybe this poison can be eliminated only if the entire CEO compenstation structure gets changed (and Boards of Directors start taking some responsibility). Any other ideas?





On Jun 08 09:43 AM Blair Dehuff wrote:

> Let's remember just how recently (in the forth quarter of last year)
> it looked like the entire US financial system was on the brink of
> total collapse! The banking system looked to be headed for a complete
> meltdown. The stock market had no bottom. Everything was going down.
> There was no "safe" place to hide money, except under the bed or
> by buying treasuries. EVERYTHING looked pretty grim.
>
> Now, fast forward to today (only a few months later). The financial
> world has not collapsed (or at least it LOOKs like this has been
> avoided) and retrospectlively there are many Monday Morning Quarterbacks
> taking pot shots at Government officials. Truth is, massive government
> intervention was in fact needed to restore public confidence. Although
> some of this "intervention" can be rightly viewed as "chemo" to save
> a dying patient, I realize the "poison" which you are talking about
> is not the short term stimulus which governments have been injecting
> into the system.
>
> You are absolutely correct that what is poisening the US economy
> is much, much broader than this and has become ingrained over a long
> period of time. Only now it is generally being recognized by the
> public at large (i.e. that there is in fact NO free lunch.) The public
> is now being FORCED to cut back on spending, and amazingly US citizens
> are starting to save a little. While this is good, it is a bit too
> little, and way too late. The system has been poisened for too long,
> and as you pointed out is still being poisened. Higher taxes are
> inevitable, one way or another (both legislated and through higher
> inflation). We, our children, and our grandchildren will have to
> "pay" (for the free lunch everyone has been enjoying for many years)
> through a reduced standard of living. There is no way around this,
> even though we may take steps to reduce or eliminate the poisen in
> our system.

Poisoning the Green Shoots

Let's remember just how recently (in the forth quarter of last year) it looked like the entire US financial system was on the brink of total collapse! The banking system looked to be headed for a complete meltdown. The stock market had no bottom. Everything was going down. There was no "safe" place to hide money, except under the bed or by buying treasuries. EVERYTHING looked pretty grim.

Now, fast forward to today (only a few months later). The financial world has not collapsed (or at least it LOOKs like this has been avoided) and retrospectlively there are many Monday Morning Quarterbacks taking pot shots at Government officials. Truth is, massive government intervention was in fact needed to restore public confidence. Although some of this "intervention" can be rightly viewed as "chemo" to save a dying patient, I realize the "poison" which you are talking about is not the short term stimulus which governments have been injecting into the system.

You are absolutely correct that what is poisening the US economy is much, much broader than this and has become ingrained over a long period of time. Only now it is generally being recognized by the public at large (i.e. that there is in fact NO free lunch.) The public is now being FORCED to cut back on spending, and amazingly US citizens are starting to save a little. While this is good, it is a bit too little, and way too late. The system has been poisened for too long, and as you pointed out is still being poisened. Higher taxes are inevitable, one way or another (both legislated and through higher inflation). We, our children, and our grandchildren will have to "pay" (for the free lunch everyone has been enjoying for many years) through a reduced standard of living. There is no way around this, even though we may take steps to reduce or eliminate the poisen in our system.

The Economic Trifecta: Inflation, Devaluation, High Interest

Trying to guess between long term deflation or hyper-inflation is like trying to pick between two very bad no win scenarios in order to guide your investments in the right direction. Sometimes the best "decision" is to do nothing at all in response to doomsday forecasts (which rarely play out anyway). For example, I don't buy gold as a hedge against hyper-inflation. Reason: I would never buy enough gold as a percentage of my portfolio to make a real difference. So what if you hold 10% in gold and the remaining 90% of your portfolio gets creamed? Meanwhile your 10% in gold is just a highly speculative gamble which guarantees you nothing. Example: I hold very few stocks, and what little I do hold is not in the US market. Belief that theUS stock market will sooner or later eventually come roaring back just because it is now so low is not necessarily good logic. The new "normal" for the US stock market could be just a sideways drift for many years to come. Long term hyperinflation or deflation scenarios make little difference in ths. Both camps could be (and probably will be) wrong.