Economists' Poll: US 3Q GDP To Rise 2.4%

by Dollars and Sense

That's a big number, and these people are also predicting a 2.2% uptick in the fourth-quarter. It's all due to the unprecedented stimulus and bank recapitalization programs: consumer consumption is very weak, as is business investment. With continuned deleveraging dampening both, and the government spigot starting to close (under the watchful eye of Congressional masochists), it will be a fragile recovery, indeed. Across the Curve has some interesting observations on the outlook today, particluarly as it affects sentiment in the bond market

From Reuters:

U.S. starts long, gradual and fragile recovery

Thu Aug 20, 2009 3:18pm EDT
By Burton Frierson
NEW YORK (Reuters) The U.S. economy is recovering more strongly than expected from its worst recession in decades, but next year will be lackluster and risks of a double-dip downturn remain, economists said in a Reuters poll.

After shrinking by 1.0 percent in the second quarter on an annualized basis, U.S. gross domestic product will grow 2.4 percent in the current quarter and 2.2 percent in the final three months of the year, according to a sample of around 70 economists.

This would make the recession that many say ended in the second quarter the longest since World War Two.

The recovery is now expected to be more robust than economists predicted last month, when they saw growth of 0.8 and 1.8 percent in the third and fourth quarters, respectively. The broad U.S. stock market is up 50 percent from March lows.

High unemployment, which the poll showed topping out at 10 percent, and a massive debt load on the shoulders of consumers will hamstring the economy after the initial rebound.

This will keep inflation largely in check and official interest rates low, while economists still see a 25 percent chance of a double-dip recession.

"Recent data suggest that the economy is near a bottom, but the recovery is likely to prove to be lengthy, gradual, and fragile," said Scott Brown, chief economist with Raymond James & Associates in St Petersburg, Florida.

"Fiscal stimulus should provide support through the end of the year and in 2010. Fed policy will remain supportive."

The government and Fed have pumped trillions of dollars into the economy in economic stimulus spending and intensive care measures meant to revive the moribund financial system, which appeared on the verge of collapse late last year.

The consensus prediction of a peak unemployment rate of 10 percent compares with 10.2 percent in the July poll.

A government report earlier this month showed the U.S. unemployment rate fell in July for the first time in 15 months as employers cut far fewer jobs than expected.

Read the rest of the article

Labels: Across the Curve, bailout, economic indicators, financial crisis, GDP

 

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8/20/2009 03:10:00 PM 0 comments

 

Warren Buffet Feels the Pain

by Dollars and Sense

More from Across the Curve. And here's what the FT has to say out it:

Buffett's Berkshire has worst results ever

By Justin Baer in New York
Published: February 28 2009 20:18 | Last updated: February 28 2009 20:18

Warren Buffett conceded that his holding company, Berkshire Hathaway, turned in its worst performance on record as the financial crisis drew the world's economy into a deepening recession, and gave investors little reason to believe a turnaround is imminent.

In his annual letter to Berkshire shareholders, Mr Buffett recounted how frozen credit markets dovetailed with tumbling home and stock prices to imperil many of the world's biggest banks and produce "a paralyzing fear that engulfed the country."

"By yearend," he wrote, "investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game."

The billionaire also urged his legions of followers to remember that the stock market usually rises--the Standard & Poor’s 500 Index has produced annual increases in 75 per cent of the past 44 years--and may do so again even if the downturn persists.

"We're certain, for example, that the economy will be in shambles throughout 2009--and, for that matter, probably well beyond--but that conclusion does not tell us whether the stock market will rise or fall," he wrote.

Regardless, Mr Buffett wrote, Berkshire will stick with a strategy that has produced an annual compounded growth in book value of 20.3 per cent: maintaining its "Gibraltar-like" financial strength, improving the competitive position of its existing businesses and making new acquisitions that bolster earnings.

Read the rest of the article

Labels: Across the Curve, Berkshire Hathaway, financial crisis, Warren Buffet

 

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2/28/2009 04:15:00 PM 0 comments

 

Obama Plan: They've Got Their Work Cut Out

by Dollars and Sense

At least if the latest housing data from HSBC are any indication. Thanks to Across the Curve (here's what the writer of the blog--I forget his name, but he's good--has to say about the stats: "I mentioned in my opening that UBS economists took some solace from the fact that a poor housing starts number would have the beneficial effect of speeding the reduction in inventories. That process will eventually lead to stability in prices.

Well what they wished for came to pass as the housing data was a debacle at every level with permits and starts lower. And it looks as though the collapse is across regions and sectors."

Here's a summary of the HSBC data:
This is the note which HSBC sent out to clients on the Housing Starts Data. There is no recovery or stability brewing in housing market.



Housing starts continue to decline steeply, falling 17% in January to a new all-time low (back to 1959) of 466k (consensus 529k)
Starts are down 39% over the last three months, down 57% since last June, and down 79% since the cycle high in January 2006
Building permits fell 5% to 521k (consensus 525k), also hitting a new record low. Both starts and permits have fallen for seven straight months, with permits falling 54% over this period
In spite of this reduced activity, the month’s supply of new homes for sale rose to an all-time high of 12.9 months as of December. This overhang is likely to keep new construction quite low until home sales recover
Evidence of any sales improvement has been scant, although December pending home sales rose for the first time in four months (+6.3%), and the yesterday’s NAHB index showed a slight improvement in buyer traffic (+3pts to 11)
Ryan Wang

Labels: Across the Curve, Barack Obama, financia crisis, mortgage meltdown

 

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2/18/2009 10:16:00 AM 0 comments

 

The Dull Compulsion of the Economic (ii)

by Dollars and Sense

Links:

(1) Japan and Latvia rack up whopping double-digit 4Q annualized GDP declines. That's two trade-loving nations in one day, one of them being a major trading partner of both the US and China, and the second largest economy, after the US, on earth. And Japan's (in an "unimaginable contraction") 1Q '09 could be worse. Comparable numbers from much of the rest of Asia are discussed here. All from today's (it's still Tuesday in Cambridge, MA) Financial Times.

(2) Mexico's drug-related violence is horrific, and what the next story describes is the last thing they need given the fierceness of the former, but the next time anyone in the US threatens to decertify their efforts in the "war on drugs," Mexico should imprison all Coca-Cola executives (including former exec and President Vicente Fox). The dollar amounts (never mind the human cost) lost because of the obesity epidemic in Mexico to foregone productivity and increased health care provisioning must reverse to a respectable degree the GDP gains (disappointing and ill-distributed as they have been) from NAFTA so beloved of free-traders. And remember, much of this US production is subsidized. From The Financial Times.

(3) The Treasury is issuing a record $67 billion in debt this week. This Lex column from The Financial Times gives a short summary of essential points (though one of its points became somewhat obsolete by the end of the day it was published, as will become apparent below).

Today's comment:
Stimulus Passes Senate, Bank Bailout Plan (Partially) Unveiled, Markets Tank

Stock prices dropped sharply today, and bond prices surged, as investors expressed confusion at best, and in some cases contempt, for Secretary Geithner's bank bailout proposal. The Dow lost 4.6% in its biggest fall since December 1st, and other indices reported similar falls. The proposal, which, according to a JP Morgan summary (hat tip to the fine site Across the Curve), features the creation of a "Public-Private Investment Fund," or P-PIF (just what we need, after TARP, TALF, M-LEC and all the others...). Such a "bad bank" would operate much as the TALF, providing non-recourse loans (on which the lender can only collect the collateral in case of default) to purchasers of (bad) assets held by the banks. But, in this case, it would be private investors who would be the beneficiaries. And, as the JP Morgan report put it:

...this plan's so-called private sector pricing of assets would be directly related to hoe much leverage the P-PIF extends to other investors. The greater the share of non-recourse lending extended to investors, the higher will be the new "market" prices for assets. The dilemma that first surfaced last September--the higher the price the greater the support for the banking system, but also the greater the risk for taxpayers--is not resolved by the P-PIF but is instead transformed into a decision about how much leverage the P-PIF will provide to investors.

Wonderful. This means that hedge funds and their ilk are the targets of this move. No doubt the Treasury is looking both at halting the record redemptions that have prevented this part of the financial industry from putting much needed cash on the markets. Once again, it seems the Obama administration and its acolytes consider that any recovery from the crisis will have to involve intimately the people who got us into it. Anyway, back to the report:

There was nothing in today's announcement about providing insurance or guarantees to assets on bank balance sheets, a proposal that seemed to be the centerpiece of the reform as late as last Friday. Any announcement related to foreclosure mitigation was deferred for a few weeks. Note that it appears the majority of P-PIF and TALF would be funded by the Fed balance sheet, thus not requiring Treasury issuance and possibly not even requiring Congressional action.

That's change we can believe in, all right: we just endured several months of it before the new administration took office....

Of all I've seen written on the subject, Brad Setser has the most intriguing notions on why the administration is looking to the leveraged players in this desperate attempt to get bad assets sold off once and for all:

The Treasury seems to have concluded that it was impossible for the government to figure out what price it should pay the banks--really the banks existing owners--for their toxic assets. There is a reason why bad bank--like the RTC [Resolution Trust Corporation]--generally were created after a bank had already failed and their equity investors have been wiped out. If the government already owns the banks assets (as a result of its guarantee of the banks' liabilities) it doesn't really matter what price it pays the "good" bank for the assets of the "bad" bank.

But providing other parts of the financial system--including parts of the shadow financial system--with credit to help it buy the banks bad assets isn't a perfect solution either.

Implicitly, Geithner and his colleagues seem to have concluded that the "great unwind" has limited the private sector's ability to absorb the banks troubled assets. Key players no longer can borrow the funds needed to make large bets on troubled mortgage-backed securities. By providing credit to those willing to buy bad assets, the US government hopes to push up their market price up, and in the process induce the banks now holding these assets to sell. The US government in effect is providing the financial system with leverage to facilitate--one hopes--a transition to a less leveraged financial system. The amount that private investors have to put down--relative to the amount they are spending--is a key detail

.

This is simply unbelievable: assets worth virtually nothing because they consisted of much less than their hyper-excessive leverage multiples are to be peddled to the very same sort of investors who have just been burned by these things, simply because the leverage is now to be put up by uncomplaining (not to mention increasingly skint) taxpayers and foreign investors, and not the banks. And this in an attempt to make a transition to a less-leveraged system! It's no surprise that nobody seems to be buying it.

All together, the proposals put forward today could amount to nearly $3 trillion. And everyone except the administration seems to believe that won't be nearly enough. Be prepared for new, and even clunkier acronyms....

Labels: Across the Curve, Asia Times, bailout, Barack Obama, financial crisis, Japan, Larry Peterson, Latvia, Lex, Mexico, the dull compulsion of the economic, Timothy Geithner, Trade

 

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2/10/2009 08:07:00 PM 0 comments

 

Dec. Job #s: Even Worse than They Look

by Dollars and Sense

Bad as the December unemployment numbers are, if you include temporary workers and discouraged workers, the situation is far worse. Hat-tip to Larry Peterson for the links that follow the WSJ excerpt.

Jobless Rate Surges to 7.2% in December

By BRIAN BLACKSTONE | January 9th, 2009

WASHINGTON -- The final employment report for 2008 closed the books on a miserable year for U.S. workers with payrolls plunging last month by more than half a million, pushing the unemployment rate to a 16-year high.

The economy lost 2.6 million jobs in 2008, government figures showed, the most since World War II ended in 1945. Nearly two million of those losses were in the last four months alone, a sign that the recession accelerated as the financial crisis intensified, and should drag on well into the new year.

The figures will likely put pressure on Federal Reserve officials to expand their already aggressive quantitative easing steps in which cash is essentially created and pumped into the economy, and gives backing to those calling for large-scale fiscal stimulus.

Nonfarm payrolls, which are calculated by a survey of establishments, tumbled 524,000 in December, the U.S. Labor Department said Friday, the 12th-straight decline and in line with the 525,000 drop Wall Street economists in a Dow Jones Newswires survey expected. November was revised to show an even steeper decline of 584,000, the most since 1974.

Read the rest of the article.

From Across the Curve:

HSBC on the Labor Report

* The unemployment rate jumped higher in December, rising to 7.2% (consensus 7.0%) from 6.8% in November (Nov upwardly revised from 6.7%). Nonfarm payrolls in December matched expectations at -524k (consensus -525k), but there were net revisions of -154k to the previous two months. Hourly earnings rose 0.3%.

* The unemployment rate increase (7.192% from 6.775% unrounded) was driven by a massive 806k decline in the household measure of employment. The labor force fell 173k, as the participation rate dropped to 65.7% from 65.8%, the lowest in over a year. The rise in unemployment therefore can not be blamed by a surge in recent job seekers.

* However, the total pool of available labor (which also includes marginally attached workers who have searched for work in the past 12 months but not the past 4 weeks) rose by 583k. On this basis,the augumented unemployment rate rose to 10.4% from 9.9% in November.

* Meanwhile, the number of persons forced to take part-time work due to economic reasons rose 715k up to 8.048mn, 72% higher from a year ago. In other words, this report shows a consistent picture of labor force weakness in a wide variety of metrics.

* The payroll diffusion index fell to 25.4 from 27.2, showing industry cutbacks remain broad-based. There are no major surprises in the category mix, with big payroll declines in constructions -100k, manufacturing -149k, and retail -66k, and temp help -81k.

* Aggregate hours worked fell 1.1%. The biggest drop was in autos (-4.3%), where end-of-year production stoppages started earlier than usual in December. But the decline in hours was also across the board in overall manufacturing (-2.4%) as well as in services. Industrial production is likely to decline accordingly next in next week’s release, mititgated only by a recovery from the Boeing strike.

And this from Brad DeLong:

And U-6--unemployed plus discouraged workers plus unable to fond a full-time job--is now at 13.5% of the labor force--and BLS "discouraged workers" are a big undercount of the concept...

Labels: Across the Curve, Brad DeLong, Larry Peterson, unemployment

 

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1/09/2009 11:10:00 AM 0 comments

 

Some Wise Words on the Citi Bailout

by Dollars and Sense

From Across the Curve:

The Citibank story is certainly the top story of the day. I know the news broke in the middle of the night but it seems to me that after 15 months of this and after Bear, and Freddie and FNMA and AIG and Lehman that the markets are inured and somewhat desensitized to news which prior to August 2007 would have been viewed as momentous.

Effectively the taxpayers are propping up an outfit with $2 trillion in assets and equity markets are screaming. I guess I think that there should be a deeper concern at our plight and the realization that the problems which infect our system could run so deep.

It is also ironic that Citibank is too big to fail and requires rescue. The regulators encouraged them as the firm spread its tentacle across the financial landscape. The new Administration should make its first order of business a review of the risk still inherent in the system. JPMorgan is an aggregation of JPMorgan, Chase, Manny Hanny, Chemical Bank, Texas Commerce Bank, National Bank of Detroit Bank One and First Chicago. That makes no sense and if the new administration wishes to establish "change" then they should begin by splitting up these supersized entities and establishing them as new firms which are not too large to fail.

Labels: Across the Curve, bailout, Citibank, financial crisis

 

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11/24/2008 12:41:00 PM 0 comments

 

It Wasn't Just an Overreaction

by Dollars and Sense

Stock markets got hammered today, but it was nowhere near as bad as some (including me) had feared it might (might, mind you) be. Still, things are by no means peachy. I leave you with the wise words from Across the Curve:

The next two weeks have the potential to be watershed events for the markets. There is a veritable tsunami of data and events which will shape views and mold opinions.

Three events dominate the landscape. The FOMC meets this coning week and the market has priced in a 50 basis point ease. I am confident that they will do that and I am also strong in the belief that the statement at the conclusion of the meeting will encourage the belief that another rate cut is not far behind. The Committee will acknowledge the debilitated condition of the domestic economy and the similarly dire state of the global economy.

During this period the Treasury will announce the refunding package for November. They should return the 3 year note to the flock and given their absolutely gargantuan appetite they will give the market some guideposts regarding the methods they will employ to raise those funds.

Finally, the results of the election could signal the end of an era of laissez faire capitalism and usher in an era of unaccustomed regulation and government control. It certainly seems as though Senator Obama is on track to be the next President. If the Democrats can sweep the Senate they will have a clear field to change the nature of the debate as Ronald Reagan did in 1980. We will know on the morning after.

There is also a plethora of economic data on the immediate horizon. Among the reports which print next week are Consumer Confidence and Durable Goods . We will get our first glimpse of Q3 GDP and the quarterly employment cost index. The Chicago Purchasing Managers Index is on the docket as well as Personal Income and Spending data.

In the following week there is the labor data for October as well as the ISM.

When all of that data has been digested and absorbed, I think participants in the major markets will have a better idea on the near term course of the economy and interest rates.

Labels: Across the Curve, financial crisis

 

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10/24/2008 03:48:00 PM 0 comments

 

Monday's Developments

by Dollars and Sense

This posting is from D&S collective member and frequent blogger Larry Peterson. To see more of his posts, click here.

Here's the skivvy on the government interventions that triggered huge stock rallies (as for US stocks, Dow up some 750 points, S&P nearly back at 1,000, with about 15 minutes left in the trading day) worldwide (with the notable exception of Japan), from Reuters. But notice especially the following:

That had an instant impact on bank-to-bank lending rates, which eased, but there was still no clear evidence of funds cascading from banks to companies.

Global bank rescue aims to halt crisis
Mon Oct 13, 2008 1:43pm EDT
By Daniel Trotta

NEW YORK (Reuters) - The world bet solidly on recapitalizing ailing banks as the fastest way out of the financial crisis in a clear new direction on Monday that reinvigorated stock markets after their worst week in history.

Led by the Britain, European governments agreed to multibillion-dollar guarantees for the banking system in moves that may become a crucial test of investor faith in government's ability to reverse the downward spiral.

Stocks were up 7 percent in midday trading after the Dow tumbled 18 percent last week amid a climate of panic and uncertainty as credit markets seized up and major economies headed toward recession. European stocks closed 10 percent higher.

"Sometime last week it seemed like we faced Armageddon, so to have a coordinated plan on stabilizing banks is huge progress," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

Wall Street also focused on investment bank Morgan Stanley, which reached a financing deal with Mitsubishi UFJ Financial Group Inc (MUFG), possibly with U.S. government support. Morgan shares soared 73 percent, after losing 58 percent lost last week.

In addition, the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank said they would lend commercial banks as much U.S. dollar liquidity they needed.

That had an instant impact on bank-to-bank lending rates, which eased, but there was still no clear evidence of funds cascading from banks to companies.

U.S. bond markets were closed for the Columbus Day holiday. The euro and sterling gained strength on the European plans, and oil rose more than $3 to $81 a barrel.

The Treasury and Federal Reserve were working to finalize details of their own plan to recapitalize banks and stabilize financial markets in the wake of the measures announced in Europe.

For weeks the United States concentrated on a $700 billion rescue plan that emphasized buying up distressed debt from financial institutions, with Treasury Secretary Henry Paulson at first resisting U.S. government ownership of banks.

British Prime Minister Gordon Brown has shifted the world's attention to the other side the balance sheet by proposing to inject new capital into banks to get them lending again.

The United States has since moved closer to the positions of European leaders, who were in Washington over weekend for meetings of the Group of Seven major economies, the International Monetary Fund and the World Bank.

BROWN PROFILE RISES

Brown has yet to win a mandate from British voters but his global profile has risen amid the crisis. He also called on world leaders to create a new "financial architecture" to update the current international economic system, which was set up at a conference in Bretton Woods, New Hampshire, in 1944.

"Sometimes it does take a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed.," Brown said in a speech at the London offices of Thomson Reuters.

Britain's bank plan called for 37 billion pounds ($64 billion) of taxpayers' cash to bail out three major banks in a move that would likely make the government their main shareholder.

Germany, France, Italy and other European governments also announced rescue packages totaling hundreds of billions of dollars that were designed to combat the banking crisis, the worst since the Great Depression.

Britain's bank plan called for 37 billion pounds ($64 billion) of taxpayers' cash to bail out three major banks in a move that would likely make the government their main shareholder.

Germany, France, Italy and other European governments also announced rescue packages totaling hundreds of billions of dollars that were designed to combat the banking crisis, the worst since the Great Depression.

Iceland--forced over the past week to take over three big banks, shut down its stock market and abandon attempts to defend its currency--officially requested financing from the International Monetary Fund, an IMF official said.

The developments also calmed Princeton University economist Paul Krugman, who was named as the winner of the Nobel prize in economics on Monday.

"I'm slightly less terrified today than I was on Friday," Krugman said. "We're going to have a recession and perhaps a prolonged one but perhaps not a collapse."

Japan said on Monday it was considering whether to guarantee all bank deposits, while the central bank said it might join further global efforts to boost dollar funding to strained money markets.

The two men vying to succeed U.S. President George W. Bush after the November 4 election were formulating their own plans.

Democrat Barack Obama, leading in public opinion polls, proposed a 90-day moratorium on home foreclosures and other measures aimed at creating jobs.

Republican John McCain was also considering rolling out a new economic package.

(Reporting by Reuters bureaus around the world; Additional writing by Eddie Evans; Editing by Gary Hill)

I'll close by citing two blog posts that pick some holes in the new arrangements. From Yves Smith's excellent Naked Capitalism:

The reader/investor who sent the link to this Bloomberg story provided the comments below. No, he does not resort to capital letters casually:

THIS IS HARD TO BELIEVE. THOSE CB'S DON'T HAVE UNLIMITED $'S,

SO IF TRUE, THEY WILL BE BORROWING THEM FROM THE FED VIA AN EXTENSION OF FED SWAP LINES,

THE FOMC HAS APPROVED LINES OF $620 BILLION AS LAST REPORTED

THIS IS FUNCTIONALLY UNSECURED LENDING TO THESE CB'S.

REPAYMENT CAN ONLY COME FROM SELLING THEIR OWN CURRENCIES FOR THE NEEDED $'S

(OR BY SOMEHOW NET EXPORTING TO THE US OR SELLING ASSETS TO THE US WHICH ARE HARD TO IMAGINE)

SOMEHOW THIS HIGH RISK, UNSECURED, 'BACK DOOR' LENDING HAS REMAINED UNDER ALL RADAR SCREENS.

AND, IF TRUE, WE WILL SOON SEE THE TOTAL $US FUNDING NEED IN THE EUROZONE.

And this, from the fine Across the Curve:

In the previous posting I noted that the German government rescue plan which includes guarantees and capital injections totalled 470 billion euros.

I hope that someone can point out a flaw in my logic but that would equate to about $2.7 trillion if one compares the relative GDP size of the US and Germany. In dollars the 470 billion Euros is $635 billion. The US GDP is about 4.3 times that of the German GDP. Do the simple extension of 4.3 times $635 billion and you get something in the neighborhood of $2.7 trillion.

There are no words to describe that sum. I dare say that it would be impossible to raise that sum in timely fashion without a total disruption of capital market flows.

Labels: Across the Curve, george bush, Gordon Brown, john mccain, Larry Peterson, Naked Capitalism, Paul Krugman, Yves Smith

 

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10/13/2008 02:25:00 PM 0 comments