I thought that, yesterday, Wal-Mart announced words to the effect that they had saved the Christmas season for the entire nation? Heck, I thought they said that they had saved Christmas for the entire world, including the Middle East, China, Japan, and Israel.
Next, they'll save the shopping season around next Ramadan and this Hannukah!
Isn't the Wal Mart excitement a little overblown? It seems the reason they did so well was because of international business, and because of the currency exchange that would make results in dollars look better. And could it also be that people who used to shop in pricier stores are now trading down becuase they have less to spend?
Twin headwinds? More like a hydra: higher energy costs, higher goods costs, higher food costs, higher healthcare costs, stagnant wage increases (when adjusted against inflation/cost-of-living), and reduced asset inflation.
My prediction: Q4 will be the last hurrah. It won't be a blowout, but the numbers will look decent thanks in large part to retailers slashing prices. Q1 will look awful in comparison, as the MEW machine grinds to a halt and increases in credit card balances start hurting. I anticipate quarter-over-quarter growth of -1% for Q1.
In the average family's hierarchy of purchases, food comes first, then utilities, then gas and car repair, then rent (the first thing they short, I was a landlord), then it's a tie between health care and durable goods and clothing. When you reduce the ability to buy -- through inflation -- it's no surprise that sales of manufactured products fall off the back of the truck first.
Oh wait, I forgot, the economy is strong. This can't be happening!
Something like 70% of GDP is tied to consumption...from income streams that supplemented stagnant wages that did not keep up with house prices...not the high powered HF investments (that did keep up...for awhile), but that MEW...as documented by Kennedy and Greenspan.
So, not as if the Fed is as deaf, dumb and blind as some Fed statements might lead one to believe.
Ah yes, the lights are coming at the party, the punch bowl is gone and it ain't looking so pretty now, what with all the roaches running around.
Who was it last night that said GDP of 5% in q3? Banker? I think so. I think this will put a damper on that number. Although the dollar index is falling faster tahtn the inflation rate stated in CPI and the Deflator, so who knows. As of right now, the dollar is 11.7% lower than it was 11.17.06. That's quite a haircut.
Rising food and energy costs led to significant increases in household spending that basically accounted for all of the gain The consumer is holding in there, but the additional spending seems to be going to pay for higher prices not more goods. It would not be surprising to see consumption for October, when adjusted for price increase, to be down. And the full impacts from the rise in energy costs have yet to be seen. Naroff Economic Advisors
"Uh-oh. It's Enron all over again
Everything was supposed to be different in the post-Enron era. So why, asks Fortune's Bethany McLean, does it feel like someone hit rewind?
...
Just as Enron's off-balance-sheet vehicles were propping up its stock price by camouflaging the company's real financial results, so SIVs were inflating the credit market by providing demand for the complex securities created out of mortgages and loans used to finance buyouts.
Like Enron's off-balance-sheet vehicles, SIVs were invisible to those on the outside -- and to many on the inside -- until they weren't. When times were good, these creations made money for their sponsors, but when times changed, they became a problem for the rest of us.
...
In both cases, part of the problem was that the rating agencies, which are supposed to serve as watchdogs, were blindly optimistic, either through sheer incompetence or because of conflicts of interest. Just as Enron's investment-grade rating -- which it kept until four days before its bankruptcy -- turned out to be an illusion, so did the investment-grade ratings on many mortgage-backed securities.
"Structured finance," as the Street calls the black art of making one thing look like something else, couldn't transform Enron from a money-losing company into a moneymaking one, and it couldn't make subprime mortgages into investment-grade debt.
Now the rating agencies are scrambling to explain why it isn't a problem that they are paid by the very people they're supposed to rate, and Congress is holding hearings. That's exactly what happened six years ago.
...
While Marx may be right that history repeats itself, it rarely does so exactly. One of the biggest enablers of the Enron mess was the accounting firm Arthur Andersen. Today it appears that the accountants have gotten some backbone. In early October the Center for Audit Quality -- which has the backing of the Final Four accounting firms -- issued a paper saying that firms could not employ wishful thinking in valuing the complex securities on their books. And that just might explain the mammoth losses that firms are suddenly declaring."
You guys might actually want to look at the size of that revision. It's no big deal at all. Also, these figures really arent that weak in general, and aren't likely to do squat in terms of a revision to q3 GDP. That said, I dont think the q4 number is going to look pretty once Nov and Dec #s roll in. And of course, this month and last of retail could still get revised down more significantly.
Okay, hold on to your hat guys, and tell me what Central Banker made this comment yesterday:
"- [The Central Bank] is inclined to define the current problem as an overall inflation pickup, and the conclusion is it is a monetary phenomenon caused by accumulated effects of external imbalances and money supply growth."
Ben Bernanke? Wrong!
It Zhou Xiaochuan, the Governor of the Chinese Central Bank.
Quick! Someone send them the last ten academic papers on the "savings glut", which is the real cause of those imbalances. While you're at it, toss in a couple of papers on the irrelevance of money supply growth. You know, the one's Ben has been reading.
And lets hope they read those papers before they choose to solve their inflation, money growth, and external imbalances in one fell swoop -- with a Yuan revaluation.
The WMT results weren't based on strong International, the earnings gain was driven by an 11% operating income increase at Wal-Mart Stores US. WMT US benefited from very tight expense control, gross margin leverage and inventory control, not sales gain. The fact that op inc rose so strongly on just a 1.5% comp is impressive, but is not indicative of a strong consumer.
I realize that small businesses are small and don't much matter for the US economy and employment. Therefore, any signal from survey of small businesses must be ignored. Conclusion: No recession yet.
Hey people have been predicting disaster coming in the next quarter now for the last 8 quarters if not more. Perhaps the recession on the horizon is a mirage?
David, according to this post by guest blogger Michael Pettis on Brian Setser's blog the Chinese may be forced to do just that. Their CPI is going pop.
"...[T]he high CPI inflation number is likely to lead to additional tightening measures, but given Chinas monetary policies I cannot see how these tightening measures will work to reduce inflation.
The whole point of tightening will be to reduce consumer demand as a way of putting a lid on inflation. But if consumer demands moderates, what will that do to the trade surplus? Of course it will rise even faster, and as the PBoC is forced to purchase the additional inflow, Chinas money supply will expand even more quickly.
In addition, whether or not you believe that speculative inflows are a serious problem for China (I think they are), it is hard to argue that raising interest rates wont have at least some positive effect on inflows. PBoC tightening, in other words, is likely to increase current and capital account inflows. The only market tools they have to attack inflation will, perversely enough, increase monetary expansion, and if you believe as I do that the root cause of Chinese inflation is excess money growth, that cannot be a viable solution.
I think China is stuck and can do nothing about domestic inflation without fixing the currency problem. This gets to the nub of the reason why I think China will be forced into a maxi-revaluation (or at least a significant speeding up of the daily appreciation). The authorities have no control over monetary policy and never will until they address the currency regime.
..."
The SF Fed also thinks that a 5% GDP growth reading for Q3 is likely. Given trade and inventory data, it seems quite possible. The PCE figure reported in the first look at Q3 GDP was below the median forecast, while GDP was above. While there is no formal reason to think a below-forecast PCE is a buffer against downward revisions, I have a stinking suspicion that PCE won't be revised lower by much, if it is revised. What this does, though is bring Q4 retail sales in wtih a lower based, relative to Q3. If the same proves true for PCE, that could mean an even softer than expected GDP reading for Q4. (The SF Fed thinks 1.5% growth in Q4.)
A look at ex-auto and ex-auto/gasoline/building materials sales show flat performance for several months. If our host is correct that HEW/MEW is weakening in Q4, that could be a problem for Q4 and Q1. Mortgage resets, gasoline prices during a set of heavy driving holidays - you know the list. If core sales are flat of late, what happens when more bad news hits?
--
Mortgage Applications confirm housing has bottomed and refi boom, near two-year high, points to buoyant consumer spending ahead.
Just look at all the jobs that are being retained to accommodate the refi boom. Conclusion: Not only no recession yet, but higher growth ahead (mortgage applications are one of the leading indicators).
I looked it up on the DOE Web site, and gas prices actually fell the forst two weeks of October, then started the rise to just barely above September. But they're up about 10% so far this month.
Interesting action in "M" (Macy's/Federated) today. M gapped up 3% at the open when it announced supposedly better than expected earnings, but has fallen 6% to -3% by noon. I'm still net short housing, retail and banks, and long metals, energy, tech and foreign stocks. It will be interesting to see what happens during the next two months. I think that a market rally is likely, but I am hoping that the weak sectors, mentioned above stay weak and get left behind.
I actually was questioning the 5.4% Q3 GDP number projected by Macroeconomic Advisors. But if you somehow read into that I was predicting an upward revision to 5.4%, all I can say is you must have a doctorate in hermeneutics with a focus on the Frankfurt School
Nov. 14 (Bloomberg) -- The yen fell against 15 of the 16 most-actively traded currencies as concerns eased that losses related to subprime mortgages are spreading.
Wal Mart's Sales, another example of baffle with Bull $hit.
Aaron Krowne:
boq: Third-quarter sales at stores open at least a year, not counting fuel, were up 1.5percent in the companys U.S. stores, same as a year ago. The company expects same-store sales for the fourth quarter to rise no more than 2 percent.
So wait a minute. Comparable sales were only up 1.5%. Why, that isnt even close to inflation, even by the governments laughable CPI! Thats a real decline! That certainly doesnt bode well for the consumer at all. In fact, Wal-Marts own projection is for comparable sales to rise no more than 2% in the fourth quarter.
So its right there in the datathere is no domestic improvement. Theres no increase to point to, and executive-suite rejiggering of marketing therefore has done squat. Analysts and reporters have connected the overall earnings increase to domestic fundamentals in a grand non-sequitur.
Where, then, did that 8%+ growth come from?
Mostly from expansion and overseas operations, as it turns out. Here is more detail on the earnings breakdown (dollar amounts in billions):
Moreover, Wal Mart admits that customer visits declined in Q3; but food sales increased 5.3% and pharmacy sales jumped 7.9%. Thank God for food & drug inflation that is not recorded in official inflation!
A friend of mine is a start up technician for a pool company in CA.
Last night, standing outside their office, after work, he told me that in 2005 they built 250 pools. In 2006 they built 180 pools. So far in 2007 they have done 108 pools and the market is DEAD.
They are cutting staff, consolidating offices and pinching pennies right and left. By the time the year is over, they will be at 50% of 2005 levels. They thought 2006 was an abberation and were convinved 2007 would beat 2005. Oops.
The pools they do average $40,000. If this does not show that big ticket item purchases are directly related to Mortgage/Equity Extraction, I do not know what does.
My friend estimated that less than 1 in 20 buyers of their pools flat out pay for them. Most people refi and roll it it. With at $40K pool, most people simply can not buy them now. LTV ratios are now too high. Lenders wont let em push it to the edge, and there is not enough spread between apprasial and existing debt owed. In other words, for big ticket items, if you can't pay for it, you can't buy it. No more funny money. People can't pay for it.
I think consumer spending IS going to falter in CA. Sales tax receipts show that it already is. I would predict the same thing in Vegas, AZ, and FL. So can the rest of the country forge ahead when the sunbelt is floundering?
This recession/depression will not be televised. They'll hide it at all costs, or at least until after 2008 so that the next president can be blamed for the whole thing.
They'll just tweak the GDP numbers to better measure inflation - not "growth" - and use that to proclaim the wonders of the economy as we go to 0% to negative on the Fed rate. If the banks can just hide all their losses for the next decade and trickle them out a few billion at a time, all will be well. It worked so well in Japan, right?
Now, if we can just get those last losers (like us) who read CR to stop saving and get on the debt train, we'll be in good shape. Debt = wealth in the new eCONomy, remember!
I just looked at growth in non-mortgage consumer debt (from the Federal Reserve). The 12-month change has not slowed at all. Thus, it appears that the weakness in retail sales is not related directly to the freeze up in mortgage markets.
There have been comments made by the bulls in our midst along the lines of "How can the government stats be total BS when there are non-government stats that would contradict them?"
As sound as that argument seems, this information seems to support our bears' statements that the government numbers are indeed BS.
So here's a question to all: "How are revisions such as these taken on the street?" My guess is that "oh, well we're past August so those numbers no longer matter" would be a common response(?).
And if this is indeed the case, then all the government would have to do (is doing?) is release BS numbers and revise them down a month or two later to something approaching reality. You know, like the NAR's been doing on a monthly basis on sales projections for 2007!
"I just looked at growth in non-mortgage consumer debt (from the Federal Reserve). The 12-month change has not slowed at all. Thus, it appears that the weakness in retail sales is not related directly to the freeze up in mortgage markets"
I don't dispute that. Credit tightening in the mortgage markets hits big ticket items first. Vacations, home remodels, pools, RVs, boats, ATVs, Jet Skis, Dirt Bikes. It takes time for people in those industries to then feel the pain...and reduce their spending.
In addition, credit card finance has not tightened up yet...but it will. Difficulties in the commercial paper markets insure that is to come. Then you will see this trend reverse, and the impact of tightening credit on the smaller discretionary purchases across the board.
I can tell you this; The owners of ****** Pools in central CA are feeling the pain. One of the owners recently spent about $1.5M on a sweet spread out in the country. 30 Acres of Orange Groves, two houses, another 1M+ in remodeling expenses. He is the one who was sure that things would continue growing like crazy. Now I hear he is a stressbomb because he does not know for sure how he will pay for it all....
Consumer led recession & a nasty bear market? I think so.
Will the August revision affect Q3 GDP?
what is the meaning of this word 'recession' that you guys always use?
I thought that, yesterday, Wal-Mart announced words to the effect that they had saved the Christmas season for the entire nation? Heck, I thought they said that they had saved Christmas for the entire world, including the Middle East, China, Japan, and Israel.
Next, they'll save the shopping season around next Ramadan and this Hannukah!
On deck: saving shopping around Kwanza (sp?).
Dollars that go into the gas tank cannot go into Circuit City.
Isn't the Wal Mart excitement a little overblown? It seems the reason they did so well was because of international business, and because of the currency exchange that would make results in dollars look better. And could it also be that people who used to shop in pricier stores are now trading down becuase they have less to spend?
CNNMoney.com: 404 Page Not Found
Twin headwinds? More like a hydra: higher energy costs, higher goods costs, higher food costs, higher healthcare costs, stagnant wage increases (when adjusted against inflation/cost-of-living), and reduced asset inflation.
My prediction: Q4 will be the last hurrah. It won't be a blowout, but the numbers will look decent thanks in large part to retailers slashing prices. Q1 will look awful in comparison, as the MEW machine grinds to a halt and increases in credit card balances start hurting. I anticipate quarter-over-quarter growth of -1% for Q1.
In the average family's hierarchy of purchases, food comes first, then utilities, then gas and car repair, then rent (the first thing they short, I was a landlord), then it's a tie between health care and durable goods and clothing. When you reduce the ability to buy -- through inflation -- it's no surprise that sales of manufactured products fall off the back of the truck first.
Oh wait, I forgot, the economy is strong. This can't be happening!
Something like 70% of GDP is tied to consumption...from income streams that supplemented stagnant wages that did not keep up with house prices...not the high powered HF investments (that did keep up...for awhile), but that MEW...as documented by Kennedy and Greenspan.
So, not as if the Fed is as deaf, dumb and blind as some Fed statements might lead one to believe.
Well, has the President's Working Group decided that we get a SURPRISE emergency rate cut before the open on Friday?
Ah yes, the lights are coming at the party, the punch bowl is gone and it ain't looking so pretty now, what with all the roaches running around.
Who was it last night that said GDP of 5% in q3? Banker? I think so. I think this will put a damper on that number. Although the dollar index is falling faster tahtn the inflation rate stated in CPI and the Deflator, so who knows. As of right now, the dollar is 11.7% lower than it was 11.17.06. That's quite a haircut.
Cheers,
Money quote IMNSHO...
Rising food and energy costs led to significant increases in household spending that basically accounted for all of the gain The consumer is holding in there, but the additional spending seems to be going to pay for higher prices not more goods. It would not be surprising to see consumption for October, when adjusted for price increase, to be down. And the full impacts from the rise in energy costs have yet to be seen. Naroff Economic Advisors
OT - The end of an era? Fortune's Bethany McLean's comparing Subprime & SIVs to the Enron debacle.
The Bulldog: It's Enron all over again - Nov. 14, 2007
"Uh-oh. It's Enron all over again
Everything was supposed to be different in the post-Enron era. So why, asks Fortune's Bethany McLean, does it feel like someone hit rewind?
...
Just as Enron's off-balance-sheet vehicles were propping up its stock price by camouflaging the company's real financial results, so SIVs were inflating the credit market by providing demand for the complex securities created out of mortgages and loans used to finance buyouts.
Like Enron's off-balance-sheet vehicles, SIVs were invisible to those on the outside -- and to many on the inside -- until they weren't. When times were good, these creations made money for their sponsors, but when times changed, they became a problem for the rest of us.
...
In both cases, part of the problem was that the rating agencies, which are supposed to serve as watchdogs, were blindly optimistic, either through sheer incompetence or because of conflicts of interest. Just as Enron's investment-grade rating -- which it kept until four days before its bankruptcy -- turned out to be an illusion, so did the investment-grade ratings on many mortgage-backed securities.
"Structured finance," as the Street calls the black art of making one thing look like something else, couldn't transform Enron from a money-losing company into a moneymaking one, and it couldn't make subprime mortgages into investment-grade debt.
Now the rating agencies are scrambling to explain why it isn't a problem that they are paid by the very people they're supposed to rate, and Congress is holding hearings. That's exactly what happened six years ago.
...
While Marx may be right that history repeats itself, it rarely does so exactly. One of the biggest enablers of the Enron mess was the accounting firm Arthur Andersen. Today it appears that the accountants have gotten some backbone. In early October the Center for Audit Quality -- which has the backing of the Final Four accounting firms -- issued a paper saying that firms could not employ wishful thinking in valuing the complex securities on their books. And that just might explain the mammoth losses that firms are suddenly declaring."
You guys might actually want to look at the size of that revision. It's no big deal at all. Also, these figures really arent that weak in general, and aren't likely to do squat in terms of a revision to q3 GDP. That said, I dont think the q4 number is going to look pretty once Nov and Dec #s roll in. And of course, this month and last of retail could still get revised down more significantly.
Okay, hold on to your hat guys, and tell me what Central Banker made this comment yesterday:
"- [The Central Bank] is inclined to define the current problem as an overall inflation pickup, and the conclusion is it is a monetary phenomenon caused by accumulated effects of external imbalances and money supply growth."
Ben Bernanke? Wrong!
It Zhou Xiaochuan, the Governor of the Chinese Central Bank.
Quick! Someone send them the last ten academic papers on the "savings glut", which is the real cause of those imbalances. While you're at it, toss in a couple of papers on the irrelevance of money supply growth. You know, the one's Ben has been reading.
And lets hope they read those papers before they choose to solve their inflation, money growth, and external imbalances in one fell swoop -- with a Yuan revaluation.
sterlingerl
The WMT results weren't based on strong International, the earnings gain was driven by an 11% operating income increase at Wal-Mart Stores US. WMT US benefited from very tight expense control, gross margin leverage and inventory control, not sales gain. The fact that op inc rose so strongly on just a 1.5% comp is impressive, but is not indicative of a strong consumer.
Small Business index confirms recession.
I realize that small businesses are small and don't much matter for the US economy and employment. Therefore, any signal from survey of small businesses must be ignored. Conclusion: No recession yet.
Jas
Q1 [2008] will look awful in comparison...
Hey people have been predicting disaster coming in the next quarter now for the last 8 quarters if not more. Perhaps the recession on the horizon is a mirage?
David, according to this post by guest blogger Michael Pettis on Brian Setser's blog the Chinese may be forced to do just that. Their CPI is going pop.
RGE - China's CPI numbers look bad
"...[T]he high CPI inflation number is likely to lead to additional tightening measures, but given Chinas monetary policies I cannot see how these tightening measures will work to reduce inflation.
The whole point of tightening will be to reduce consumer demand as a way of putting a lid on inflation. But if consumer demands moderates, what will that do to the trade surplus? Of course it will rise even faster, and as the PBoC is forced to purchase the additional inflow, Chinas money supply will expand even more quickly.
In addition, whether or not you believe that speculative inflows are a serious problem for China (I think they are), it is hard to argue that raising interest rates wont have at least some positive effect on inflows. PBoC tightening, in other words, is likely to increase current and capital account inflows. The only market tools they have to attack inflation will, perversely enough, increase monetary expansion, and if you believe as I do that the root cause of Chinese inflation is excess money growth, that cannot be a viable solution.
I think China is stuck and can do nothing about domestic inflation without fixing the currency problem. This gets to the nub of the reason why I think China will be forced into a maxi-revaluation (or at least a significant speeding up of the daily appreciation). The authorities have no control over monetary policy and never will until they address the currency regime.
..."
The SF Fed also thinks that a 5% GDP growth reading for Q3 is likely. Given trade and inventory data, it seems quite possible. The PCE figure reported in the first look at Q3 GDP was below the median forecast, while GDP was above. While there is no formal reason to think a below-forecast PCE is a buffer against downward revisions, I have a stinking suspicion that PCE won't be revised lower by much, if it is revised. What this does, though is bring Q4 retail sales in wtih a lower based, relative to Q3. If the same proves true for PCE, that could mean an even softer than expected GDP reading for Q4. (The SF Fed thinks 1.5% growth in Q4.)
A look at ex-auto and ex-auto/gasoline/building materials sales show flat performance for several months. If our host is correct that HEW/MEW is weakening in Q4, that could be a problem for Q4 and Q1. Mortgage resets, gasoline prices during a set of heavy driving holidays - you know the list. If core sales are flat of late, what happens when more bad news hits?
--
Mortgage Applications confirm housing has bottomed and refi boom, near two-year high, points to buoyant consumer spending ahead.
Just look at all the jobs that are being retained to accommodate the refi boom. Conclusion: Not only no recession yet, but higher growth ahead (mortgage applications are one of the leading indicators).
Sebastian is right.
Jas
The parade continues -
Lehman CFO sees no need for big new writedown of assets
I looked it up on the DOE Web site, and gas prices actually fell the forst two weeks of October, then started the rise to just barely above September. But they're up about 10% so far this month.
Interesting action in "M" (Macy's/Federated) today. M gapped up 3% at the open when it announced supposedly better than expected earnings, but has fallen 6% to -3% by noon. I'm still net short housing, retail and banks, and long metals, energy, tech and foreign stocks. It will be interesting to see what happens during the next two months. I think that a market rally is likely, but I am hoping that the weak sectors, mentioned above stay weak and get left behind.
Misean,
I actually was questioning the 5.4% Q3 GDP number projected by Macroeconomic Advisors. But if you somehow read into that I was predicting an upward revision to 5.4%, all I can say is you must have a doctorate in hermeneutics with a focus on the Frankfurt School
--
John Thain to save mother Merrill.
It is morning in America and bright day lies ahead. Ignore the clouds; they will dissipate.
What is good for BFNYC is good for America.
Jas
Nov. 14 (Bloomberg) -- The yen fell against 15 of the 16 most-actively traded currencies as concerns eased that losses related to subprime mortgages are spreading.
Whew. Everythings fine
Conjure Bag wanted to yet again re-affirm his forecast, but I assured him that everyone in the CR universe already knows it:
Recession Q1-08
"Stocks waver".
What passes for a panic on Wall Street.
Raise your hand if you plan on spending less this Xmas than you did last year.
Wal Mart's Sales, another example of baffle with Bull $hit.
Aaron Krowne:
boq: Third-quarter sales at stores open at least a year, not counting fuel, were up 1.5percent in the companys U.S. stores, same as a year ago. The company expects same-store sales for the fourth quarter to rise no more than 2 percent.
So wait a minute. Comparable sales were only up 1.5%. Why, that isnt even close to inflation, even by the governments laughable CPI! Thats a real decline! That certainly doesnt bode well for the consumer at all. In fact, Wal-Marts own projection is for comparable sales to rise no more than 2% in the fourth quarter.
So its right there in the datathere is no domestic improvement. Theres no increase to point to, and executive-suite rejiggering of marketing therefore has done squat. Analysts and reporters have connected the overall earnings increase to domestic fundamentals in a grand non-sequitur.
Where, then, did that 8%+ growth come from?
Mostly from expansion and overseas operations, as it turns out. Here is more detail on the earnings breakdown (dollar amounts in billions):
Wal-Mart Earnings Summary, 3 Months Ended Oct 31:
Unit\t2007\t2006\t% change
Wal-Mart Stores (US)\t$57.651\t$54.179\t6.4%
Sams Club\t10.826\t10.206\t6.1%
International\t22.403\t19.158\t16.9%
eoq
Moreover, Wal Mart admits that customer visits declined in Q3; but food sales increased 5.3% and pharmacy sales jumped 7.9%. Thank God for food & drug inflation that is not recorded in official inflation!
But if money goes into labor isn't that the "bad" kind of inflation? Would that not necessitate raising rates?
But if money goes into labor isn't that the "bad" kind of inflation? Would that not necessitate raising rates?
No, if money goes into labor we need a cab or an ambulance.
Consumer spending antecdote....
A friend of mine is a start up technician for a pool company in CA.
Last night, standing outside their office, after work, he told me that in 2005 they built 250 pools. In 2006 they built 180 pools. So far in 2007 they have done 108 pools and the market is DEAD.
They are cutting staff, consolidating offices and pinching pennies right and left. By the time the year is over, they will be at 50% of 2005 levels. They thought 2006 was an abberation and were convinved 2007 would beat 2005. Oops.
The pools they do average $40,000. If this does not show that big ticket item purchases are directly related to Mortgage/Equity Extraction, I do not know what does.
My friend estimated that less than 1 in 20 buyers of their pools flat out pay for them. Most people refi and roll it it. With at $40K pool, most people simply can not buy them now. LTV ratios are now too high. Lenders wont let em push it to the edge, and there is not enough spread between apprasial and existing debt owed. In other words, for big ticket items, if you can't pay for it, you can't buy it. No more funny money. People can't pay for it.
I think consumer spending IS going to falter in CA. Sales tax receipts show that it already is. I would predict the same thing in Vegas, AZ, and FL. So can the rest of the country forge ahead when the sunbelt is floundering?
This recession/depression will not be televised. They'll hide it at all costs, or at least until after 2008 so that the next president can be blamed for the whole thing.
They'll just tweak the GDP numbers to better measure inflation - not "growth" - and use that to proclaim the wonders of the economy as we go to 0% to negative on the Fed rate. If the banks can just hide all their losses for the next decade and trickle them out a few billion at a time, all will be well. It worked so well in Japan, right?
Now, if we can just get those last losers (like us) who read CR to stop saving and get on the debt train, we'll be in good shape. Debt = wealth in the new eCONomy, remember!
I just looked at growth in non-mortgage consumer debt (from the Federal Reserve). The 12-month change has not slowed at all. Thus, it appears that the weakness in retail sales is not related directly to the freeze up in mortgage markets.
There have been comments made by the bulls in our midst along the lines of "How can the government stats be total BS when there are non-government stats that would contradict them?"
As sound as that argument seems, this information seems to support our bears' statements that the government numbers are indeed BS.
So here's a question to all: "How are revisions such as these taken on the street?" My guess is that "oh, well we're past August so those numbers no longer matter" would be a common response(?).
And if this is indeed the case, then all the government would have to do (is doing?) is release BS numbers and revise them down a month or two later to something approaching reality. You know, like the NAR's been doing on a monthly basis on sales projections for 2007!
"I just looked at growth in non-mortgage consumer debt (from the Federal Reserve). The 12-month change has not slowed at all. Thus, it appears that the weakness in retail sales is not related directly to the freeze up in mortgage markets"
I don't dispute that. Credit tightening in the mortgage markets hits big ticket items first. Vacations, home remodels, pools, RVs, boats, ATVs, Jet Skis, Dirt Bikes. It takes time for people in those industries to then feel the pain...and reduce their spending.
In addition, credit card finance has not tightened up yet...but it will. Difficulties in the commercial paper markets insure that is to come. Then you will see this trend reverse, and the impact of tightening credit on the smaller discretionary purchases across the board.
I can tell you this; The owners of ****** Pools in central CA are feeling the pain. One of the owners recently spent about $1.5M on a sweet spread out in the country. 30 Acres of Orange Groves, two houses, another 1M+ in remodeling expenses. He is the one who was sure that things would continue growing like crazy. Now I hear he is a stressbomb because he does not know for sure how he will pay for it all....