I think it is even weaker than it looks due to changes in the numbers of undocumented workers. During the expansion, the number of jobs created was underestimated due to under the table workers and now the number of jobs lost is underestimated for the same reason. Whatever feelings one has about illegal aliens, there is no doubt that their presence added demand to the economy and their absence will subtract it.
Interesting how the amplitude of the spikes in unemployment starts to shrink in the early 90's - I suspect this is coincident with changes in the way unemployment statistics were reported - starting about then.
If we're going to use unemployment data as an important indicator of recessions, I think it's important to use consistent measures of umemployment. I'd be interested to hear CR's take on John William's analysis on Shadow Government Statistics, which shows much higher unemployment and inflation rates, based on consistent measures of these variables from the 80's.
Remember: these numbers are pulled out of thin air, and are always skewed to the positive side. The reality is much worse. At the end of Q2, the real numbers will be released, and we'll get a new set of lies.
I agree, if the shadow labor force was hidden on the way up then the losses will also be hidden on the way down. But in any case, we are shedding real jobs. The question I have is the quality of the jobs...are we shedding mostly service sector as a result of businesses trimming down to meet reduced demand, or are many of these jobs financials, and other 'knowledge economy' jobs...? It's the shedding of many high-income high-value jobs that will cascade into a severe service sector retraction...
trend looks bad. tough to build a case for avoiding at least a shallow recession and not so tough to build a case for a typical tough recession. i don't think it's the end of the world (ultra/perma bear) but I also think that unemployment will continue to pick up, corp profit margins will compress, S&P earnings will come in even more than current consensus, the PE multiple to price the S&P probably compresses a bit and broad US equity markets will have a tough time mounting a sustained rally over the next 3-12 months in the face of that. not a guarantee (markets can defy neg news for a long time) but the odds favor it.
I'm looking for data that could support a bull or bear market story (next 12 months)and when I compare the data points for each, decide which scenario is a higher probability. Bear is still higher probability IMHO right now. But I'd love to hear well reasoned, clearly articulated cases with data for each scenario.
When much of the current problems with mortgages and the credit crunch started last January, one of the things I found in the financial models was the assumption that without job losses their would not be a substantial fall in demand or housing prices.
This obviously has proved to be wrong, but what is important is that the current decline has happened WITHOUT significant job losses. Now that we see that jobs are being shed, a second powerful wave of downward pressure is going to be exerted on the economy and housing in particular.
The 1099 has exploded. Know that from experience. A lot us contractors watched our salaries stagnate or decline while our benefits were whittled away...so the response is 1099 to increase you're share and take the burden of health care and other benefits directly on your own books...but the result is that you are bearing the risk and cannot possibly bargain as effectivley as a multi-million dollar company...so, yep, 1099s exploded as part of the jobless recovery...we could lose 10 million jobs this year, and won't reflect on the payroll numbers, so you have to ask yourself if poltical decisions are being made about bad numbers, what's the point?
And, we are staring down the barrel of peak oil. If people spend a penny of their rebate checks it will be on gasoline. Thread music: YouTube - Carole King - It's Too Late
I'm surprised by the large drop in manufacturing jobs. Is this solely related to auto?
Primarily auto but also home building materials & components (windows, doors, sheetrock, chip board, etc.).
I've heard the lay offs at chip board & window plants have been pretty heavy but they tend to be more automated (same employment whether running hard or slow - only way to lay off is to shut down).
Automotive is a complete disaster - worst I've ever seen it & I saw it bad going into the early 80s recession. I was in meetings yesterday with a company that makes both automotive & building controls & they told me building is bad, auto is worse. However in both cases this company looks at it as an opportunity - they don't have a lot of debt & their competition does. They are going to continue to roll out new product and try to kick'em when they are down. Recessions are great opportunities to kill off your competition.
Marcus Aurelius Remember: these numbers are pulled out of thin air, and are always skewed to the positive side.
This is not true. During trend changes the adjustments are off, and they will be on the negative side when the trend is positive and on the positive side when the trend is negative.
The other comments about 1099 and under the table employment are valid. It is likely that employment is cycling at a higher difference than we know.
But the household survey is supposed to pick up 1099 workers. It certainly misses transient and low-level undocumenteds.
Buy parking lots. Huge profit potential. Gonna have to park all those repo'd escalades somewhere especially in Florida. Park a couple hundred $$ aside. You should be able to buy a 2008 model with low miles for about two weeks worth of groceries.
we could lose 10 million jobs this year, and won't reflect on the payroll numbers, so you have to ask yourself if poltical decisions are being made about bad numbers, what's the point?
Weak jobs report will probably be seen as "the bottom". Oh well.
The featured video on the Yahoo main page today is a story about a couple that earns less than $30,000 a year that were facing foreclosure on their $335,000 home ( I am not kidding) but fought the bank and won. Great message to send out en masse. Whenever I see the $30k income buyers of $350k home I know that the mortgage losses are FAR from over no matter what the analysts say.
i just wanted to address the bulls claims of the "whining" that has gone on on this board over the last few days as some kinda contrary indicator that the worst is over. the "whining" if there has been any has to do with a gov't and Fed that seems comfortable changing the rules in the middle of the game. i view that as destructive to mkt confidence and trust, the 2 most important aspect of any free mkt economy. the bulls discount that argument and say well what did u expect? that kinda argument is typical of the attitude in America that has brought us to this pt and will continue to take us down. this attitude is one of directed self interest, do whats best for me, what i want is now, screw our kids, and bail me out. poor recipe for longterm success.
the stock mkt may continue to bounce but longterm we're heading down.
umber2son I think that manufacturing jobs will not grow because there is global overcapacity. Also remember that China manufacturing is still cheaper...
So 1Q2008 with revised Jan/Feb and preliminary Mar:
Total non-farm: -232 K
Total private: -286 K
So in the first quarter, government employment increased by 54 K jobs - that seems like a trend that will be reversing with the recent flurry of news items on the condition of state and local budgets.
(Absent any consideration of the undocumented or 1099 work force flying under the radar of BLS statistics)
Eventually when the dollar collapse, might even get a little higher then that. Uncle Ben will be here to give the crack addicts some more crack soon enough.
They are going to continue to roll out new product and try to kick'em when they are down. Recessions are great opportunities to kill off your competition.
But they still see more slowness ahead.
dryfly | 04.04.08 - 9:23 am | #
The company my younger brother just started with just did this. Family owned,zero debt and cash heavy. They knew the competition was in trouble and took a couple of key contracts away. Just announced a purchase of the entire company. They doubled in size overnight. The best part,they still have zero debt and are generating cash like crazy...
Wall Street shares headed for a higher opening Friday and Treasurys rallied following news that the economy gave up 80,000 jobs last month, the biggest loss in five years.
Although the job losses are a signficant sign of economic weakness, some investors were reassured that the total was not 100,000 or more.
good point about participation...the frustrating thing is that on 1099 you could be making 1/10 of what you made last year, but you sure are participating...same point with real wage reduction...you're employed but bread and gas cost more...
Also remember that China manufacturing is still cheaper...
Not in everything - not in a lot of ways. Been a lot of good articles on just how not cheap China is UNLESS the product is high in low skill labor content.
And there isn't over-capacity in a lot of sectors (materials, energy, food) just in baubles & tchotchkies. There is still a world full of unmet basic needs out there.
Do provide a case in point as to how bad government policy works against The People, look at the pending housing bill provision to extend tax benefits to home builders.
Rather than wasting money giving money back to the corporations responsible for creating this mess, congress could put that money to better use extending unemployment benefits to workers who have lost their jobs (as pointed out by dryfly upthread).
But that won't happen while the third largest contributors to congress is the Home builders PAC.
As part of the monthly pissing in the wind I'll again point out the alternative measures of unemployment - IMO U6 is the better measure ( U3 is the number that everyone talks about and uses in the USA) and the seasonally adjusted unemployment level is 9.1, up from 8.9 in Feb.
good point about participation...the frustrating thing is that on 1099 you could be making 1/10 of what you made last year, but you sure are participating
I'm 1099 - if I lose my number one client I go negative income - costs > remaining revenue. I know exactly what you mean.
Jan delta: -69 K
Feb delta: -82 K
Mar delta: -93 K
Hope that ain't a trend, as MoM has pointed out we are going to need sectoral changes showing an increase in manufacturing - just hard to see that yet.
craig, thanks for the thoughtful post, a breath of fresh air. I struggle with the same thoughts looking at the data. I do think that we've stabilized the financial sector for now, but a lot of orderly unwinding remains which will hurt profits for the rest of 2008. I don't see the sector doing well overall until 2009 because fees will also be markedly down as deals dry up and everyone retrenches.
Auto is done until we're on the rebound. And I'd be surprised if Chrysler isn't unloaded to a Chinese company by year end as the 3-headed dog seeks to staunch the bleeding. Ford and GM are just going to bleed for a while further. I think they will survive, but will be shadows.
This summer will be interesting for travel and tourism...a big part of the hiring this time around. If it goes as I think (more people staying home), look for unemployment to rise as the season gets underway if it underwhelms. Interestly enough however, foreign workers are having a hard time with Visas this year (I know as I have a place in a resort area) and that may mean that they will try to fill the jobs with US based students.
I'm on the side of a shallow, but disheareningly long recession and I believe it began is December.
someone here said that the Fed has put a floor under the stock mkt. can someone explain that to me? when they brokered the BSC deal, shares went to $2. when they did the BAC/CFC deal CFC is at $5. any bailout assistance will involve wipeout of common shareholders it seems to me.
do u still see an upward strengthening in manufacturing numbers?
I sure do but NOT in automotive or building supplies - those areas are shedding faster than ever.
Where is mfg hurting for 'skilled workers'? Aerospace - in places like Witchita and KC... and in ag equipment mfg, like those companies supplying John Deere & CNH.
The mfgrs I know need workers but not entry level - they need experienced machinists & welders & the office mfg-support folks to keep the logistics running (say IT guys with lots of SAP experience).
In the short run they won't make a dent in the jobs lost in automotive alone let alone housing.
They knew the competition was in trouble and took a couple of key contracts away.
Chris, I can tell you that at my company, we're now constantly talking about acquisitions now that the economy sucks, and we're planning on who we're going to target. While everyone else screams about the sky falling, we'll take advantage of that and shore up our position by eliminating some competition. As i've repeatedly said, this is the time to look for value and for those who are wounded, as well as for those who have been punished needlessly along with the bad ones.
I live in a northern NJ wall street town. The economic slowdown & Bear collapse has everybody freaked out.
Most seem to be cutting way back on discretionary spending. Everything - summer camps, private nursery schools, restaurants, starbucks. Layoffs galore are starting too. And not just Bear either. People are really fearful. The bravado is gone.
Incredibly, it seems most were caught of guard. Go figure.
Yes it's raining and gray here, so it adds to my economic outlook. Buckle up because the rest of the year is going to be a belt-tightener. I'd prefer the deep and quick, but this is going to be a grind.
Chris, I can tell you that at my company, we're now constantly talking about acquisitions now that the economy sucks, and we're planning on who we're going to target. While everyone else screams about the sky falling, we'll take advantage of that and shore up our position by eliminating some competition. As i've repeatedly said, this is the time to look for value and for those who are wounded, as well as for those who have been punished needlessly along with the bad ones.
this is a normal response in the initial stages of a downturn. everyone is still flush from the good times and look to redeploy that money. as things worsen they realize things really are serious and then they get more cautious. difficult to pick a bottom.
But I see the same problem. No one's hiring recent college grads...they don't want to invest in training, and believe me they need to be trained both technically and in common sense (you show up on time,...ect.)...I see a need for the right people, but it's hard to get the right people when they are geographically located somewhere else in a house they can't or won't sell...so, I see recovery problems...one of those double maybe triple bounce recessions....of course I think if things don't get sorted out on the solvency front, systemic failure keeps creeping to teh fore...
By the way, there is some countervailing evidence that the job market is not quite as weak as the official stats seem to show. Federal Unemployment Taxes (FUT) are rising YoY. This reverses a two-year trend.
One of the reasons is probably more people cobbling a living by working two part-time jobs. The FUT cap is so low that this would often double the quarterly receipts.
However usually FUT gains lead the economy, and the FUT signal is quite strong. It may be that the B/D adjustment is adjusting some production employment sectors downward.
You can see Treasury receipts (they are published daily) here.
Also freight measures not related to retail are picking up, and so are overall measures, which reverses a two year trend.
I know auto mfrg is bad, and anything related to homebuilding is tanked, but there has to be strength somewhere. The weaker dollar must be leading to some insourcing and enhanced domestic production in at least some sectors.
April's receipts will give us a hint on the small business economy vs the big business economy.
well it sure looks like a perfect setup for a good plunge today: terrible eco data getting a bit more terrible; financials squeezed badly over the last couple of sessions; and finally most important bears no longer expect this market to fall, nah not today!
someone here said that the Fed has put a floor under the stock mkt. can someone explain that to me?
idoc, i believe that the Fed actually put a floor underneath the financials by stepping in on BSC. That stabilized the stock market to some degree and it took the panic and uncertainty away as to what would happen if someone collapsed. We got the answer. That does not mean, however, that the DOW won't proceed further down, just that the panic part of it has stopped.
And acquisition strategy is started now, but executed later as the downturn gets steeper. The watch starts now. We have money and time. We will be fine, and we'll wait until the grind is in full swing. Then we'll make offers that can't be refused. Timing is everything. BTW, when you see a lot of acquisitions start to connsumate, you'll know it's a signal.
Thanks for that great y-o-y job growth chart. What it depicts is what the bears have been saying about job losses: that in this cycle they are likely to be shallow since job creating was relatively weak.
The takeaway from the graph, IMO, is that recessions have typically begun at or a little higher than the weak y-o-y growth we are seeing today. The bull's claim that we need "200k lost a month" to classify as a true downtrend is just plain wrong.
MOM, I'm going to say that the increase in FUT is from what you suggest, and that is related to export sectors. Also the freight numbers indicate the same thing. The only bright spot is that the low dollar has expanded this segment. Domestic demand is in the crapper and will be for some time. Look at the outbound ratios for some of the story.
your acquisition strategy is perfectly reasonable.
i agree much of the panic has been taken out temporarily. but that was only one of many so far in the early stages (think CFC, N. Rock, etc). the real question is will they be able or allowed to keep it up. i think the checkbook has a limit. obviously biased but i think buying stocks esp. financials is risky esp. given no evidence that shareholders will be bailed out as well. its those bondholders that should be smiling.
The point I am trying to make is that record home ownership rates and record housing prices don't match the reality of the declining real incomes of the majority.
Too much debt, too little income. I just don't see a housing recovery.
I know auto mfrg is bad, and anything related to homebuilding is tanked, but there has to be strength somewhere. The weaker dollar must be leading to some insourcing and enhanced domestic production in at least some sectors. - MOM
Aerospace is insane right now. The planes are so old the flying stock needs complete turn-over. The supply chain to Boeing & Airbus are going crazy trying to just keep up.
Similar thing in commodity machinery - ag & such. Its a world demand driven phenomenon.
Both industries ramp up very slowly so couldn't usefully absorb the laid off from other places... I mean how many mortgage brokers you think can run high speed milling machines used to make air frame parts? These machines will take a 2000 pound piece of aluminum and turn it into a 200 pound part and 1800 pounds of 'metal chips'. The cutters run at 40,000 rpm. One mistake and its 2000 pounds of scrap and lost machine time on a $5MM machine.
The weak dollar is helping but it took a couple decades of stupid policy that got us here - it isn't going to reverse in one or two job report cycles.
I agree in that I see "failure to confirm" stats all over the place. Maybe the most notable is non-financial corporate earnings, which are holding up despite cost inflation and weakening growth. Now, I know that the domestic portion of these is weakening, but where is the margin contraction from higher input costs?
So we have a situation in which a number of high-conviction variables spell "deep recession", but the fact is they have not yet gained traction.
Its like my daughter: when I as her if she's done her homework, she answers, "yes, but not yet."
So the real question, in my mind, is what is the countervailing force, the thing that is stopping the negative feedback loop of delevering to take hold?
that Geithner looks too young for the job IMO. maybe its my envy of success for a peer. seriously though, he looked and spoke with true fear in his voice yesterday and its quite clear hhe in fact is a more important cog in this Fed machine than most realized. i thought they'd try to mince words alittle more to prop up confidence in the economy but they laid it all out on the line IMO. didn't do alot for my confidence. continue to be amazed at the bulls.
Still takes credit to buy expensive machinery...most farmers have in the red for decades...banks might not be loaning, even to this sector...also, it's possible that profit is profit with or without more cultivated land...
So the real question, in my mind, is what is the countervailing force, the thing that is stopping the negative feedback loop of delevering to take hold?
hanks for your great insights. why would farm machinery to Deere be weak? esp. given the ag run?
idoc | 04.04.08 - 10:02 am | #
It isn't - I talked to a buyer there who hasn't come up for air since last year. They are 30-40% ahead of forecast in the ag division and forecast was very aggressive.
I bet the res & comm lawn tractor & construction equip divisions are plenty weak - that and their 'finance units' (similar to how GMAC was set up)... but they are making tractors & combines - balls to the wall.
Ag is still their largest division though residential & commercial was catching up in the 'hay daze' of the housing bubble. I don't call on them so don't really know.
More jobs lost? That must mean the market will only go up! We're in a "mid-cycle slowdown" where we crash into a wall at high speeds, which slows us down. Then, everything will get better and we'll all go back to flipping houses to each other that nobody can afford since that is a "recovery" in the eyes of the Powers that Be. Sure, gas will be $5 a gallon, but that's not part of inflation calculations anyway.
No, please stop being so gloomy and BUY something today - Wall Street and Realtors really need the fee money!
Anybody catch Mark Haines on CNBC this morning? It would appear that the average job loss for a third month of losses, for those periods leading to or including a recession, have been over 100,000. Therefore, "this report wasn't all that bad!" LOL!!
These numbers exist for the same reason that the five day weather forecast exists. People want to know.
Someone or something will step in and supply the information. As to whether it's accurate, or even well meant, well that's another story.
People (like Sebastian e.g.) will cite these numbers when it suits their purposes. When it doesn't, they'll ignore them. The whole thing is too ridiculous on the face of it.
Still takes credit to buy expensive machinery...most farmers have in the red for decades...banks might not be loaning, even to this sector...also, it's possible that profit is profit with or without more cultivated land...
Not now, not at these prices - do the math.
Most farmers own their land without a ton of debt. They are cash poor but land rich. That is changing as newbies come in and buy land at $5K/acre but that isn't the majority of them yet.
So a guy has an average farm say a measly 2000 acres - and plants corn on it... and it produces lets say 180 bu/acre. He sells it at $4/bu -> $1.44MM dollars revenue (prices are actually higher but elevators price is lower plus transport cost).
Now lets say it cost him $2/bu inputs... might be more, might be less - depends on how intensive his practices are. Most guys I know are 'minimum input - no till, some fertilizer, some herbicide & pesticide but not much - too expensive... That means the farmer has a net of about $700K on that farm this year.
Understand his 'lifestyle costs' - how he chooses to live - are about a tenth of that (lives as if they had a $70K/year salary - or LESS).
You can pay down debt & buy new machinery with that. And the smart ones are - big time. The dummies are buying land at $5k-$6K an acre on debt with their net as 'down payment'. Those folks will be the victims of the NEXT farm crisis in a decade or so.
Automotive is a complete disaster - worst I've ever seen it & I saw it bad going into the early 80s recession. They are going to continue to roll out new product and try to kick'em when they are down. Recessions are great opportunities to kill off your competition.
But they still see more slowness ahead.
dryfly | 04.04.08 - 9:23 am | #
Maybe the Big 3 automakers will come up with something innovative, something that actually improves fuel efficiency. But that's asking too much. I don't see how the top management at these companies can do any more harm, but I'm sure they won't fail to disappoint.
Anybody catch Mark Haines on CNBC this morning?
When he stumbled onto the set or fell off his stool afterward? Two and a half minutes can be a long time to go between drinks.
In support of Dryfly's comments on ag, ag loans are doing very well. I don't think there is any problem getting credit for experienced farmers who are aren't loaded down with debt.
Wait a minute, the market has turned down on bad news? I'm getting confused. Bad news = good for stocks; Good news = good for stocks. What am I missing?
Interestly enough however, foreign workers are having a hard time with Visas this year. [ipodius]
Not to mention foreign visitors/tourists. With additional hoops to jump through (almost literally!), they may simply give up, in spite of the weak dollar, and vacation elsewhere. Who wants to take the chance of being misidentified at the border and sent to Gitmo? Even American citizens can have trouble re-entering the country. Do you have any unpaid parking tickets? Watch out.
I don't see how the top management at these companies can do any more harm, but I'm sure they won't fail to disappoint.
I talked with mid-level managers in auto supply chain yesterday... they can tell you first hand those top level execs never fail to disappoint.
BTW - if they decided on great new product today, it wouldn't hit the showroom for 2-4 years... that's how long it takes to really switch over everything.
dryfly
Would you believe that a coconut estate/farm costs around 12K per acre.
Some areas can be 20K per acre !!
Apparently same prices in India too. Coconut Estates
approx 100Rs=1USD
David - I believe one of the biggest factors here is that the consumer credit bubble (which was basically kept afloat by home prices) overshadowed a production side of the economy which had been in recession for several years.
There is a duration limiting factor on recessions. After a while, spending has to increase or companies go bankrupt. The weaker dollar is presenting some opportunities, and the better companies will expand into this. Companies weighed down with big debt are more likely to collapse.
Also, I believe you will see foreign private capital coming into the production sector in two ways. The first is buying portions of companies with hard assets and production capacity. The second is insourcing to cut mfrg costs. China's relative advantage has been greatly cut, and some EU manufacturers will try to contract for parts, etc, in the US to defray the problems of the higher EU.
dryfly writes:
I talked with mid-level managers in auto supply chain yesterday... they can tell you first hand those top level execs never fail to disappoint.
BTW, I was reading how the assumed return on GM pensions is around 8.5% or so. How are they going to get that
with the 10-year at 3.50% and the 30-year just over 4%? Those assumptions will have to come down, resulting in more pension costs and less net income.
The dummies are buying land at $5k-$6K an acre on debt with their net as 'down payment'. Those folks will be the victims of the NEXT farm crisis in a decade or so.
dryfly | 04.04.08 - 10:20 am | #
A lot of the old timers I know are smiling right know as unnamed,out of state investors are buying up farmland at insane prices. I have heard around 10k or more in NW Ohio for top land. All we need is a couple of good years of production and commodity prices will fall back. All lot of these idiots are gonna loose a shitload of money on these deals.
As a FYI,the exact same land could be bought for 2.5-3k per acre in 02-03.
Seed corn is going out the door at record levels according to the guy I know in the biz. If you can drop a drill or planter in the ground its getting planted this year due to high prices.
and some EU manufacturers will try to contract for parts, etc, in the US to defray the problems of the higher EU.
MaxedOutMama | Homepage | 04.04.08 - 10:42 am | #
At lunch yesterday a domestic US producer was telling me they can now compete with eastern European producers - as it should be, those eastern Europeans are every bit as well trained & skilled and productive as our folks, why should have they been so cheap all along? Now they aren't 'cause their output is priced in euros mostly.
And those workers can now afford to actually BUY THINGS - mean more price pressure for us.
I second Cobra's 10:47 post - you'd have to want to burn money to buy land at today's prices. Casey Serrin must have discovered farming - its the NEW 'Green Acres' show...
At lunch yesterday a domestic US producer was telling me they can now compete with eastern European producers
Let me add - that is for parts made in US & landed in Europe. The high euro is killing their mfg - the ECB won't let this last forever... unless they got Rubin on the payroll.
any bailout assistance will involve wipe out of common shareholders it seems to me.
The main thing was it didn't wipe out the bond holders. Hedgies that we're short CDS got their head handed to them and then came the margin calls. Most most were also short stocks, long commodities.
I had a late night drive through the dark night in the northern Rockies last night. The call in shows around the west were loaded with people who have suddenly figured out that we are in for rough sledding. This is a big change from a month ago when people were oblivious. Public opinion is getting very dark.
Well here is a interesting one for the group...My Fedex Ground guy just dropped off some needed stock orders. His truck was packed top to bottom,front to back. I asked how busy he has been. His response "More freight than at anytime in the last 4 YEARS". And I am in one of the worst home markets,SW Florida.
Well,time to get on with the head gasket job...Nah,it's Friday,truck will still be here on Monday.
So we are seeing the flip side of the recovery, one in which the manufacturing recession actually ebbs. This suggests that some of the pain of the consumer-led manufacturing adjustment will actually occur overseas, esp. in China. Its interesting because we have also exported our inflation to China. So they will be presumably caught between falling demand and rising costs: an ugly situation. Which leads to the conclusion that they need to decouple, if only to solve their inflation problem. The way to do that is to revalue their currency by 30% or more.
People scoff at this idea, and yet it is the logical conclusion to our monetary policy since 2001 (when China was actually deflating).
China's inflation rate is a pressing political issue, and it can no longer be ignored by their government. Imagine if we have rice hoarding an the attendant unrest heading into the Olympics this summer.
That's interesting. I was talking with an old friend of mine over the weekend - he has worked for UPS for the past 20 years, or so - and he had the opposite take on package/parcel shipping. He said that he can't remember a time with less activity.
Maybe it's something in the business/market models.
Since we seem to have a fight about the reliability of the unemployment figures whenever they're released, is there not any data on unemployment using the ILO definition? This may have its own problems, but it is comparable over time and between countries, and should be more isolated from political massaging.
Cobradriver,
Make sure you have a good torque wrench and the correct bolt tightening sequence for your cylinder heads. Warped heads, while common on CNBC, are not desireable for your car's engine.
I am willing to bet that company you met with would be Johnson Controls...if you have cash when your industry goes into a downturn then you have great opportunities to take advantage of distressed competitors.
Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody's Economy.com, a unit of New York-based Moody's Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.
We don't have a sense of the magnitude of what's really going on because the whole process is being delayed,'' Zandi said in an interview.Looking at the data, we see the problems, but they are probably measurably greater than we think.'
In my area in India, the price of acre varies from $10K to $250K. Unthinkable. It is going to raise even further after the pay hike recommended by sixth planning commission. India and China are well seated and safely secured on hyper-inflation train and the train now moves at the speed of 200 miles an hour with increasing speed. The best part is the train doesnt have any break at all.
That is why I always feel that irrespective of the forex they have, BRIC countries will blow it in few years.
Deflation and depression in US and developed countries while rest of the world going through hyper-inflation.
"Make sure you have a good torque wrench and the correct bolt tightening sequence for your cylinder heads. Warped heads, while common on CNBC, are not desireable for your car's engine."
I work on over the road/heavy duty stuff. All head bolts in our apps are torque to yield. Basically a low torque setting and then a certain number of degrees of turn added after.
You really don't want to know how I add the needed 90 degrees of turn to the current job. Lets just say diesels are pretty much impossible to screw up.../cough/impact/cough/
SAN FRANCISCO (MarketWatch) -- Appaloosa Management on Friday dealt a harsh blow to Delphi Corp.'s plans to emerge from bankruptcy when the hedge fund pulled out of its agreement to invest $2.55 billion in the auto-parts supplier
Dirk van Dijk, Remind 'em goldilocks is a fairy tale. Employment losses, inflation, capital destruction, housing bust, severe leverage contraction... are all real economic feeds.
Cobradriver,
What's your opinion of Detroit Diesel vs Cat or Cummins engines? I used to work for a DDA regional service co and it would be interesting to hear from someone else the relative merits.
Southern California farmland is selling for $50,000 - $80,000 an acre. went for $15,000 - $25,000 pre bubble. The ground rents for $2,000 - $3,000 an acre and is in an ag preserve. Producers grow fresh fruits and vegetables that have all of the input cost increases and none of the price strength of commodities.
Seems to me that the strength in export-oriented manufacturing will likely not offset the losses elsewhere. Those that are adding jobs also tend to be less labor-intensive than those losing them, too.
Still can't grasp your optimism regarding the IBs. The business model is broken and their assets are crap. Just because they have a large credit line with the Fed doesn't mean they're still not going downhill, it just delays the inevitable.
Has anybody else been watching the impolde in Australia - quite fastinating!
The Australian Securities and Investments Commission has alleged in the Federal Court that as his house of cards crumbled, Opes chief executive Laurie Emini attempted to protect six of his top clients from margin calls of more than $200 millio
"Maybe the Big 3 automakers will come up with something innovative, something that actually improves fuel efficiency."
The Chevy Volt might work -- it's a simpler version of a hybrid that would probably be available cheaper, and maybe be just as efficient if not more so. They advertise it all the time as "coming soon."
But that's because they're depending on the Japanese for the battery tech, and it's not there yet. So yes, it's very likely this will be another non-starter. Par for the Detroit course.
You really don't want to know how I add the needed 90 degrees of turn to the current job. Lets just say diesels are pretty much impossible to screw up.../cough/impact/cough/
Back when I walked the shop floor at the ethanol plant I always carried a 'cheater bar'... But then we had manholes into vessels we were pulling & then replacing that had a ring of 2" nuts holding them on. It was a rush to use a 3 foot long 'crescent wrench' with a 6 foot pipe on the end as a cheater. We had to bust them loose before the impact wrenches could even make 'em budge a degree.
That's probably why all their engineering hires were young rural guys like me (back then any way - not so young anymore). More brawn than brain.
"Let Bernanke have a shot at one and I can guarantee a serious part failure!"
At this point in the cycle, Bernanke and Co. have done an absolute incredible job of keeping the markets intact and retaining faith and order in the system.
If you want to use the word "shot", that is what should be done to Greenspan.
I think these job losses are positive for the markets: the more jobs lost, the more expansionary the recovery.
Exactly. Couple that with the apparent recovery in commodity prices and the fact that producers have difficulty passing input increases to consumers, and you have a nice formula for widescale earnings collapse. That's also quite bullish for the markets, as there's a new paradigm in the air.
tj & the bear writes:
Seems to me that the strength in export-oriented manufacturing will likely not offset the losses elsewhere. Those that are adding jobs also tend to be less labor-intensive than those losing them, too.
Still a net negative for employment.
tj & the bear | 04.04.08 - 11:41 am | #
I agree that export related mfg (and also domestic mfg that is now competitive vs import) will NOT be enough to offset this trend in the short run... in the long run though the weak dollar will have an effect - we will consume (buy) less. The economy will realign around those new set points - with a higher percentage made here, a lower percentage made there but overall a lower standard of living AND less consumption by Americans ON AVERAGE.
I won't be terrible either - a lot of our consumption has been just plain stooopid... doesn't make us any happier or live any better really - just made us broke.
Those consumption patterns will change whether we like it or not but doesn't have to be the end of the world.
At this point in the cycle, Bernanke and Co. have done an absolute incredible job of keeping the markets intact and retaining faith and order in the system.
Yes, Bernanke has shown that even the biggest elephant can be covered if you have the right rug.
Population growth rate:
\t0.894% (2007 est.)
Birth rate:
\t14.16 births/1,000 population (2007 est.)
Death rate:
\t8.26 deaths/1,000 population (2007 est.)
Life expectancy at birth:
\ttotal population: 78 years
GDP - real growth rate:
\t2.2% (2007 est.)
GDP - per capita (PPP):
\t$46,000 (2007 est.)
Labor force:
\t153.1 million (includes unemployed) (2007 est.)
People take what they want to take,'' McGee said.They feel that they're owed.''
i still say this whole debacle is about mistrust and lack of confidence in the whole system. it has permeated our entire system from top (Fed supposedly illegal bailout of BSC), Bush's lack of domestic interest, to the middle levels of our financial system (mortgage lenders, regional banks) and down to the consumers who are walking away and defaulting on everything in record numbers.
this recipe does not bode well for our financial system, not to mention our social, moral fabric.
THAT's why the Fed actions aren't helping. They're not exposing and dealing with the problems, they're helping hide them. Hardly what we advised Japan to do. Guess "practice what you preach" is lost on the Fed.
"What's your opinion of Detroit Diesel vs Cat or Cummins engines?"
All the majors are pretty good on the heavy side. We happen to be running Detroits and Cummins and both seem fairly good. Just did a in frame on a Detroit with 2.6M miles. The bearings looked new. Only major repairs to that point were injectors at about 1.6M and a turbo at 1.8M.
If ya maintain em they are pretty much bulletproof.
Now the bad news. Urea injection/particle traps coming in 2010. Nightmare of unfathonable description. I can't go into details but lets just say we will be keeping current rigs on the road until probably 2015 at the EARLIEST. I don't mind emission stuff but lets just say if some breakthroughs dont come around it will be a truly ugly model year.
07's are saddeled with particulate traps alone and they are a nightmare,not to mention costing 1500.00 each...
all those hidden foreclosures are going to cause big problems down the line. there was a good debate on Market Ticker yesterday about how banks are moving REO properties into holding companies once again avoiding bringing them on balance sheet. what would you rather see on your own balance sheet:
S N writes:
In my area in India, the price of acre varies from $10K to $250K. Unthinkable. It is going to raise even further after the pay hike recommended by sixth planning commission.
The BigPicture states: Merrill Lynch North American Chief Economist David Rosenberg points out a simple but overlooked fact about economic growth: The US population is expanding 1.0 - 1.5% per year. Any GDP growth of less than that means that on a per capita basis, we are contracting.
Of course, that completely ignores the fact that the first 2% of GDP is almost entirely due to things like the benefits of "free checking", so it's actually much, much worse.
Greenspan= 15 pound eaton roots supercharger applied to credit markets
Bernanke= Nitrous added for extra power for investment banks
Either way, extended high RPM operation will ALWAYS result in excess heat and eventual engine failure. Debating whether we throw a rod or drop a valve is useless.
There were fewer jobs in March than there had been five months earlier. In the last 50 years, whenever there has been an employment downturn like the one of the last few months, a recession has followed.
Bernanke = Repair get done but engine runs rough and still needs further fixin.
More like you might get a couple of more miles out of it but you are gonna need a new car soon bc the engine is fu--ed. The hyper leverage system is broken and cannot be fixed, HB and IB, and bussiness modeles are just broken, going forward.
Now huricane victims can get with the housing bill cause they werew victums of subprime , and money for renewable energy cause they too were vicums of the subprime, and - bloddy hell!
blueridge said: "Interesting how the amplitude of the spikes in unemployment starts to shrink in the early 90's - I suspect this is coincident with changes in the way unemployment statistics were reported - starting about then."
I'm certain that it's not. Economic measures like GDP, CPI-U, interest rates, as well as unemployment have become less-volatile over the past couple of decades.
Which is completely logical. From the very end of the 1960's to the beginning of the 1980's inflation was both high and volatile, and the Fed policy responses were "slam on the gas, slam on the brakes," exacerbating the swings.
Conditions aren't the same now, so it's completely normal for the economy to be more steady.
Wow, the MSM really has the fine art of turd polishing down pat. Markets in the green on news that the economy lost 232k jobs in the last three months and the data was much worse than previously thought. I give up....
From the very end of the 1960's to the beginning of the 1980's inflation was both high and volatile, and the Fed policy responses were "slam on the gas, slam on the brakes," exacerbating the swings.
Dryfly, there was an article in Bloomberg a couple of weeks ago talking about the boom in offers for geology and chemical engineering grads for petroleum companies. Mark Twain was right, history does rhyme, it seems like the late 70's/early 80's all over again.
David Pearson This suggests that some of the pain of the consumer-led manufacturing adjustment will actually occur overseas, esp. in China.
Greatly rising inflation for everyone.
It's led by food costs at the moment in Asia. The rice break last week pretty much put paid to any hope of a less inflationary environment. That will send food costs shooting up.
The global counterbalance to inflation was exporting labor and mfrg to economies in which either the government subsidizes food and fuel costs or the worker spends more than 50% of their income for those items.
The governments are stepping up subsidies but they can't do it enough. The workers need to be paid more, and now that inflation comes back double-barreled to the developed world.
These commodity prices are not sustainable. Either they deflate Indonesian/Thai etc currencies, or they break.
You cannot escape fundamental economics. Food prices inflated over 36% last year (basic foods).
What the average American misses is that many of these people spend their food budgets for the basic grains and oils, and those are the costs that are shooting through the roof.
This carbon-tariff crap and the biofuels push is making matters much, much worse. The drive to limit food exports or slap on high export tariffs is going to escalate basic food inflation.
The possibility of an Asian currency crisis combined with a contraction in world trade now exists in 2009/2010. The Indonesians are going to be spending well over 4% of their GDP and over 12% of their gov. budget just for basic consumer needs subsidies in 2008. It's not freaking sustainable. It's the equivalent of servicing about 80% of GDP of debt.
dryfly said: "Ya the new Fed models only come with a gas pedal."
And speaking of applying the gas, I think the big takeaway from today's non-farm payrolls number is that we're definitely looking at at least one more Fed easing.
Bernanke has got to be scared blind by the latest data, although cooler heads would point out that even -80,000 net jobs lost in a month is still closer to a rounding error than a meaningful change. And that the Fed's most-recent and dramatic actions haven't had nearly enough time to flow through the system and make an impact.
Secondary takeaway: CR is going to have to shift his "probable recession" bars to the right on his charts, because we're still not there. (I was girding myself for a net -200k to -300k March job-loss and abject humiliation as I was forced to abandon my "no recession" position. So until the numbers are subsequently revised to show that I got shot, I dodged the bullet and remain unharmed.)
And speaking of applying the gas, I think the big takeaway from today's non-farm payrolls number is that we're definitely looking at at least one more Fed easing.
Another strong case for yet another deep rate cut is being made by the street! Fed's ability to prop the banks with rate cuts is nearing the end. Wonder what's the next move? If the US economy doesn't turn around in the Q3, the whole world will be recessing! Our govt has wildly succeeded in leveling the field for the rest of the world; not by lifting the rest of the world up but by bringing the US down to the rest of tye world. Go figure!
Another strong case for yet another deep rate cut is being made by the street!
Yup, I think one more cut. But they will surprise and only cut by .25 as they will refocus on the dollar. They have been squeaking about "taking time to work through" and had 2 dissenting votes last time. So I think they will be in pause mode. That and they are at the point where cuts just won't matter.
Great - so we can prop the stock market with rate cuts through the end of June...which would probably put us at 1% or slightly below. Does anything really think we'll go to zero?
How is Japan able to hold their rates near zero for so long? Was their inflation contained because of the cheap chinese imports?Perhaps they don't consume as much as us.
I wonder if Fed can answer why Japan's economy and the stock market remained stagnant for almost a decade now? Despite it all, why has the Yen remained strong? Is it because of their savings?
Like the "Yen carry trade", are we going to witness a $$ Carry trade boom? The only problem with that is nobody in their right mind really wants $$ at the moment. What a mess!
I dont hink we should have an unemplowmnet report because we all know its bogus. If it werent for gvt hiring the jobless report would be closer to 100k.
WE SHOULD HAVE AN EMPLOYMENT REPORT THE WAY THINGS ARE GOING.
When will all this craziness end. I am truly sick of it.
I was girding myself for a net -200k to -300k March job-loss and abject humiliation as I was forced to abandon my "no recession" position-Sebastian
Come on, did you really think a -200k number would print today? Do you think that a number like that will ever be allowed to print by the new "stability protection" arm of the FED?
JJL,
You have a point. They say FED is autonomous, but I have no doubt the FED, Labour, Treasury, & Commerce collude all the time. And the revisions seem to be worse most of the time ....
Otherwise what will they really discuss when they meet all the time?
If they are so autonomous why would they even meet?
novice writes:
How is Japan able to hold their rates near zero for so long? Was their inflation contained because of the cheap chinese imports?Perhaps they don't consume as much as us.
They didn't consume near as much - they were net savers even considering their gov't deficits. Plus they were net exporters. ZIRP helped re-weaken their currency after Plaza to make sure they didn't consume & that they exported.
Saving & producing does NOT describe US practices quite so much.
Do you believe in the decoupling theory? Weak dollar definitely could help the manufacturing but it still requires strong international demand. And I'm not convinced it is going to continue. Also, other currencies race to bottom is not out of question.
In Eastern Europe, the consumption growth was enormous and clearly unsustainable (20% growth YoY of retail sales in Poland for instance). I heard similar stories about other developing countries. It is not supported by productivity growth but by credit bubble. There is going to be painful rebalancing in developing countries as well.
Is there employment data that tracks how many jobs folks are working to pay bills? I know several who have lost their 'second' job. Yes, they're still employed but they're no longer making enough to cover their monthly expenses.
Novice writes:
I wonder if Fed can answer why Japan's economy and the stock market remained stagnant for almost a decade now? Despite it all, why has the Yen remained strong? Is it because of their savings?
This is really puzzling to me, too, why Japan experienced so much more deflation than Western countries. The only things I can come up with is the boom was greater and the BOJ didn't react as swiftly and deceicively in countering deflationary forces than European CBs or the FED. But I'm not sure.
Anyway, we do not need to worry about deflation for decades to come as we're in inflationary mode.
here is my prediction for the dollar based on the technicals/charts
Within the next two weeks ... the U.S. Dollar will finish bottoming out and start moving up.
The Relative Strength indicator shows that the Dollar reached an oversold level on March 17th. Once the Dollar hits an oversold level, the typical pattern is for it to consolidate for a few weeks and then start an upside move.
Do you believe in the decoupling theory? Weak dollar definitely could help the manufacturing but it still requires strong international demand. And I'm not convinced it is going to continue. Also, other currencies race to bottom is not out of question.
There isn't a finite pot of demand out there - that is the fallacy that BOTH the coupled & decoupled camps make. In that respect they are 'coupled' buy in a loose 'hydraulic' sense not in a hard fast 'mechanical' sense.
So I expect Asian INTERNAL demand to stay fairly strong regardless - they need water systems, roads, telecomm etc. Those demands are not going to go away just because we don't buy as much cheap plastic crap at WalMart.
Also a lot of the effects from a weak dollar is NOT direct export but domestic import substitution... by that I mean a company like John Deere or Caterpillar goes back to buying a part made in the US that a few years ago they had sourced in Asia... I see that happening about as fast as mfgrs can afford to retool here. The two forces in balance here are the weak dollar (pushing retooling) and the difficulty in the credit markets (pushing against retooling). In short the weaker the dollar the more the balance pushes toward retooling. I see it happening every day.
So will Asia feel an effect? Yes.
Will it be negative? Yes - but not 100% drop dead 1:1: coupled, some slow down but not complete slow down 'cause they have their own needs to fill too, separate from us. I know the US thinks we are the only market, the only demand possible - ain't so. Less so everyday.
Will there be some orders to US exporters lost due to some of this 'Asian slow down'? Sure - but a lot of it will be made up by the domestic 're-sourcing' resulting from the import substitution I mentioned above.
What is even more important to remember is the lag effects - it can take YEARS to resource a supply chain. So we are just seeing the beginning of what is likely to happen. It could very well be that the dollar - in aggregate - is plenty weak enough already to accomplish the majority of the re-balancing required. Probably what the world needs now is more re-balancing between Asian currencies & euro (Asians up in aggregate & euro down some). The dollar is stuck in the middle - too weak against the euro, still too strong against Asia.
The last sentence alluding to the currency race to the bottom is the potential problem that could mess up re-balancing. We'll know if that is a threat if Asian CFB dollar reserves start to expand dramatically even as their exports to us slow - that would tell you they are buying dollars even if they suck just to weaken their own currencies. That would not be a good sign - it would suggest more instability ahead.
While the job loss is not as extreme (yet) as in the previous recessions, as Ritholtz mentions, the job creation was the weakest for a recovery since WWII. Remember, in previous recoveries we had sustained monthly job creation of 300k to 400k, even during the Carter years. I think we only had one or two months during the past 5 years that even approached that kind of growth.
So while we may have "only" 100k monthly job losses for the time being, on a relative basis the damage to employment is just as bad as in previous recessions.
First we had "no chance of recession."
Then we had "perhaps a slowdown" for 1 or 2 quarters.
Now we have, "but it will be short and shallow" and 'mild' compared to previous recessions.
The next forecast will be, "yes, we are in a very bad recession, but that translates to a rebound which will be that much stronger.....in 2009 or 2010 or..."
why Japan experienced so much more deflation than Western countries
Simple. In the late 80s the Japanese started living @ American quality-of-life standards (or better!). The Lost Decade featured people going back to how they lived 1965-1985.
My deepest apology for reposting this, but I need to expand on an idea:
Jobs: Nonfarm Payrolls Decline 80,000 in March
GDP - real growth rate:
2.2% (2007 est.)
GDP - per capita (PPP):
$46,000 (2007 est.)
Nonfarm business sector (Productivity and Costs)
The nonfarm business sector is a subset of the domestic economy and excludes the economic activities of the following: general government, private households, nonprofit organizations serving individuals, and farms. The nonfarm business sector accounted for about 77 percent of the value of gross domestic product (GDP) in 2000.
What about economic growth data on farms related to this recession, after all, we are going into the Next Dust Bowl.
Re: Farm Prices Report
U.S. farms getting bigger, numbers falling
The decline in the number of farms and land in farms reflects a continuing consolidation in farming operations and diversion of agricultural land to non-agricultural uses.
The changes within the sales classes were a result of operations moving to larger sales classes by consolidation or expansion and rising incomes as a result of strong commodity prices. Because of rising incomes, many farms and ranches near the top of their sales class in 2006 moved into the next higher sales class in 2007 without adding land or otherwise expanding their operations, according to NASS.
Released February 15, 2008, by the National Agricultural Statistics Service
There were 778,000 hired workers on the Nation's farms and ranches
during the week of January 6-12, 2008. Of these hired workers, 599,000
workers were hired directly by farm operators. Agricultural service
employees on farms and ranches made up the remaining 179,000 workers.
Due to Agency budget constraints, the January 2007 Farm Labor Survey was
not conducted. Since the data in all Farm Labor Surveys are tied to a
specific reference week, it was not possible to conduct this survey at a
later time. Therefore, year-to-year comparisons are not available in
this report.
Yesterdays unemployment claims of 407,000, if persistant through the month, suggest Aprils employment report will exceed 200,000. If it happens, this will shock those who predict a mild, short slowdown, and will tank the stock market.
For the long term situation, I'd agree with you. And I also think that against euro, dollar is already too weak (although if you get wage inflation, this difference can quickly evaporate) and still too strong against Asian currencies. But this rebalancing it is a slow process, and it will not help during this current recession. It may, however, significantly help in the recovery. I find the situation similar to Argentina (although more gradual), where the economy rebound from the collapse thanks to exports and weak imports (even though the standard of living fell significantly).
However, all this would work if the global economy is at worst case stagnant in the following years. But deep global recession (Great Depression 2 but inflationary) is not completely ruled out. Everywhere you look, you can see imbalance and correcting the imbalance requires painful restructuring, with increased unemployment as one of the side effects.
There isn't a finite pot of demand out there - that is the fallacy that BOTH the coupled & decoupled camps make. In that respect they are 'coupled' buy in a loose 'hydraulic' sense not in a hard fast 'mechanical' sense.
You mean "fixed" because the demand is definitely finite
You are right that it is not fixed but non-fixed does not imply rising. In long term, technical and scientific progress ensure the improvement but in short to medium term, everything is possible. Also, "need" is not "demand". Chinese would definitely need a lot of infrastructure and a lot of improvement in everything. But they need to have productive means of supporting it. And if their economy is oriented on producing unnecessary goods, it will need to restructure. Coming from a country that had a lot of unproductive and unnecessary industry, I can tell you that it was painful. And after 19 years of reorienting the economy, not all wounds are still completely healed.
Gramm was partly caught up in the Enron scandal when it emerged that his wife Wendy had part written an exemption for Enron from federal oversight while she was serving on the Commodity Futures Trading Commission. She then accepted a directorship at Enron. Gramm was personally involved further when it came to light that he had helped to turn the exemption into law as well as push through the deregulation of energy markets that led in part to the Enron scandal. During this period Enron was a major contributor to his campaigns
In 1984, Gramm was elected as a Republican to represent Texas in the U.S. Senate. He defeated Congressman Ron Paul in the primary election and liberal Democratic candidate Lloyd Doggett of Austin in the general election for the right to succeed retiring Republican Senator John G. Tower. Gramm polled 3,116,348 votes (58.5 percent) to Doggett's 2,207,557 (41.5 percent), though Doggett would go on to become a House member later. Gramm served on the Senate Budget Committee from 1989 until leaving office in 2003. Gramm and Senators Fritz Hollings and Warren Rudman devised a means of cutting the budget through indiscriminate, across-the-board spending cuts if deficit-reduction targets were not met. They were successful in making the Gramm-Rudman-Hollings Act law, but portions were ruled unconstitutional and other sections have largely been superseded by other budget-controlling mechanisms. Later in his Senate career, Gramm spearheaded efforts to pass banking reform laws, including the landmark Gramm-Leach-Bliley Act in 1999, which modernized Depression-era laws separating banking, insurance and brokerage activities. Between 1995 and 2000 Gramm, who was the chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, received $1,000,914 in campaign contributions from the Securities & Investment industry
he general co-chairman of John McCains presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to todays economic turmoil.
A regulatory structure set up for banks in the 1930s needed to change because the nature of business had changed, the Illinois senator running for president said in a New York economic speech. But by the time [it] was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.
Gramms role in the swift and dramatic recent restructuring of the nations investment houses and practices didnt stop there.
A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBSs new investment banking arm.
Later, he became a major player in its government affairs operation. According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006.
During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.
For his work, Gramm and two other lobbyists collected $750,000 in fees from UBSs American subsidiary. In the past year, UBS has written down more than $18 billion in exposure to subprime loans and other risky securities and is considering cutting as many as 8,000 jobs.
Gramm did not respond to an e-mail and was unavailable for comment, according to a UBS spokesman. The bank has no official position on the subprime crisis, the spokesman said, but is a member of the Financial Services Roundtable and other industry groups that are actively lobbying Congress on the issue.
Now, some housing experts and economists see Gramms thinking in the recent housing proposal from McCain, the Republican Partys presumed presidential nominee. Gramm is often a surrogate for the Arizona senator, particularly in meetings focused on the economy. And McCain has hinted hed consider the former Texas senator for Treasury secretary in a McCain administration.
McCain delivered an economic speech Tuesday that had Gramm's input, but it was written by domestic policy adviser Douglas Holtz-Eakin.
Sen. Gramm was one of dozens of folks whom Sen. McCain has consulted on the housing issue, including Carly Fiorina and Meg Whitman from eBay," said McCain campaign spokesman Brian Rogers. "They've been friends for years, and he values Sen. Gramm's advice."
sorry i figured it out..one point, how was merrill able to pay-out $15bln in bonuses for 2007, a year in which its 3rd and 4th quarters compiled over $20bln in writedowns. clearly, merrill was undercapitalized then as now. and the fed is now capitalizing merrill and last year's bonus payments? when will congress convene wall st. ceo's and ask them this?
Thank you CR.
I expect to see the bleeding accelerate this summer into winter. Don't recovery coming fast either in 09.
IMO
duh
I think it is even weaker than it looks due to changes in the numbers of undocumented workers. During the expansion, the number of jobs created was underestimated due to under the table workers and now the number of jobs lost is underestimated for the same reason. Whatever feelings one has about illegal aliens, there is no doubt that their presence added demand to the economy and their absence will subtract it.
and teh birth-death model still can't throw up a negative adjustment....in any sector....
Interesting how the amplitude of the spikes in unemployment starts to shrink in the early 90's - I suspect this is coincident with changes in the way unemployment statistics were reported - starting about then.
If we're going to use unemployment data as an important indicator of recessions, I think it's important to use consistent measures of umemployment. I'd be interested to hear CR's take on John William's analysis on Shadow Government Statistics, which shows much higher unemployment and inflation rates, based on consistent measures of these variables from the 80's.
I'm surprised by the large drop in manufacturing jobs. Is this solely related to auto?
Given the weak dollar, I expected manufacturing at least to hold steady.
Or is this just malinvestment over the past 7 years simply coming home to roost? If so, the U.S. economy is in for a deeper-than-expected recession.
I expect the Dow to rally because of this news. Its the only logical response.
Remember: these numbers are pulled out of thin air, and are always skewed to the positive side. The reality is much worse. At the end of Q2, the real numbers will be released, and we'll get a new set of lies.
trail,
I agree, if the shadow labor force was hidden on the way up then the losses will also be hidden on the way down. But in any case, we are shedding real jobs. The question I have is the quality of the jobs...are we shedding mostly service sector as a result of businesses trimming down to meet reduced demand, or are many of these jobs financials, and other 'knowledge economy' jobs...? It's the shedding of many high-income high-value jobs that will cascade into a severe service sector retraction...
trend looks bad. tough to build a case for avoiding at least a shallow recession and not so tough to build a case for a typical tough recession. i don't think it's the end of the world (ultra/perma bear) but I also think that unemployment will continue to pick up, corp profit margins will compress, S&P earnings will come in even more than current consensus, the PE multiple to price the S&P probably compresses a bit and broad US equity markets will have a tough time mounting a sustained rally over the next 3-12 months in the face of that. not a guarantee (markets can defy neg news for a long time) but the odds favor it.
I'm looking for data that could support a bull or bear market story (next 12 months)and when I compare the data points for each, decide which scenario is a higher probability. Bear is still higher probability IMHO right now. But I'd love to hear well reasoned, clearly articulated cases with data for each scenario.
umber2son | 04.04.08 - 9:10 am
The real growth in manufacturing jobs can be found in the burgeoning number of meth labs. These are, of course, kept off the balance sheet.
Nice illustrative graphs, CR!
I think it is even weaker than it looks due to changes in the numbers of undocumented workers.
Same even more so w/ 1099s.
Job creation from the birth/death model astounds me. +28m jobs in construction? +23m jobs in business and professional services?
When much of the current problems with mortgages and the credit crunch started last January, one of the things I found in the financial models was the assumption that without job losses their would not be a substantial fall in demand or housing prices.
This obviously has proved to be wrong, but what is important is that the current decline has happened WITHOUT significant job losses. Now that we see that jobs are being shed, a second powerful wave of downward pressure is going to be exerted on the economy and housing in particular.
Those jobs in "construction" are for constructing the New Reality.
The 1099 has exploded. Know that from experience. A lot us contractors watched our salaries stagnate or decline while our benefits were whittled away...so the response is 1099 to increase you're share and take the burden of health care and other benefits directly on your own books...but the result is that you are bearing the risk and cannot possibly bargain as effectivley as a multi-million dollar company...so, yep, 1099s exploded as part of the jobless recovery...we could lose 10 million jobs this year, and won't reflect on the payroll numbers, so you have to ask yourself if poltical decisions are being made about bad numbers, what's the point?
And, we are staring down the barrel of peak oil. If people spend a penny of their rebate checks it will be on gasoline. Thread music:
YouTube - Carole King - It's Too Late
I'm surprised by the large drop in manufacturing jobs. Is this solely related to auto?
Primarily auto but also home building materials & components (windows, doors, sheetrock, chip board, etc.).
I've heard the lay offs at chip board & window plants have been pretty heavy but they tend to be more automated (same employment whether running hard or slow - only way to lay off is to shut down).
Automotive is a complete disaster - worst I've ever seen it & I saw it bad going into the early 80s recession. I was in meetings yesterday with a company that makes both automotive & building controls & they told me building is bad, auto is worse. However in both cases this company looks at it as an opportunity - they don't have a lot of debt & their competition does. They are going to continue to roll out new product and try to kick'em when they are down. Recessions are great opportunities to kill off your competition.
But they still see more slowness ahead.
The US Government: Employer of last resort.
Marcus Aurelius Remember: these numbers are pulled out of thin air, and are always skewed to the positive side.
This is not true. During trend changes the adjustments are off, and they will be on the negative side when the trend is positive and on the positive side when the trend is negative.
The other comments about 1099 and under the table employment are valid. It is likely that employment is cycling at a higher difference than we know.
But the household survey is supposed to pick up 1099 workers. It certainly misses transient and low-level undocumenteds.
Buy parking lots. Huge profit potential. Gonna have to park all those repo'd escalades somewhere especially in Florida. Park a couple hundred $$ aside. You should be able to buy a 2008 model with low miles for about two weeks worth of groceries.
we could lose 10 million jobs this year, and won't reflect on the payroll numbers, so you have to ask yourself if poltical decisions are being made about bad numbers, what's the point?
It will show up in participation rate.
CR,
In your chart, are all the unemployment numbers for the previous years calculated using same methodology.
Would really appreciate a breakdown of the components that go to calcualating unemployment (or a pointer to location that has it).
regards
sbarrkum
Weak jobs report will probably be seen as "the bottom". Oh well.
The featured video on the Yahoo main page today is a story about a couple that earns less than $30,000 a year that were facing foreclosure on their $335,000 home ( I am not kidding) but fought the bank and won. Great message to send out en masse. Whenever I see the $30k income buyers of $350k home I know that the mortgage losses are FAR from over no matter what the analysts say.
Bloomberg News
i just wanted to address the bulls claims of the "whining" that has gone on on this board over the last few days as some kinda contrary indicator that the worst is over. the "whining" if there has been any has to do with a gov't and Fed that seems comfortable changing the rules in the middle of the game. i view that as destructive to mkt confidence and trust, the 2 most important aspect of any free mkt economy. the bulls discount that argument and say well what did u expect? that kinda argument is typical of the attitude in America that has brought us to this pt and will continue to take us down. this attitude is one of directed self interest, do whats best for me, what i want is now, screw our kids, and bail me out. poor recipe for longterm success.
the stock mkt may continue to bounce but longterm we're heading down.
Good morning all. A few stats:
% of total national Adjusted gross income (nAGI):
1980: Top 1% = 8.46% of nAGI
Bot 50% = 17.68% of nAGI
2005: Top 1% = 21.20% of nAGI
Bot 50% = 12.83% of nAGI
Q: How was an "ownership" society ever going to work with this type of income distribution trend?
A: Higher prices for ever!
Yeah right. As if!
umber2son I think that manufacturing jobs will not grow because there is global overcapacity. Also remember that China manufacturing is still cheaper...
CR
Would really appreciate a breakdown of the components that go to calcualating unemployment (or a pointer to location that has it).
Forget about that part, jumped the gun.
See that the Bureau of Labor has more than enough info.
regards
sbarrkum
does it mean everything is just fine and DOW 20k?
MoM
do u still see an upward strengthening in manufacturing numbers?
posting on your site is difficult with your current system.
YouTube -
check it out.
So 1Q2008 with revised Jan/Feb and preliminary Mar:
Total non-farm: -232 K
Total private: -286 K
So in the first quarter, government employment increased by 54 K jobs - that seems like a trend that will be reversing with the recent flurry of news items on the condition of state and local budgets.
(Absent any consideration of the undocumented or 1099 work force flying under the radar of BLS statistics)
does it mean everything is just fine and DOW 20k?
Eventually when the dollar collapse, might even get a little higher then that. Uncle Ben will be here to give the crack addicts some more crack soon enough.
They are going to continue to roll out new product and try to kick'em when they are down. Recessions are great opportunities to kill off your competition.
But they still see more slowness ahead.
dryfly | 04.04.08 - 9:23 am | #
The company my younger brother just started with just did this. Family owned,zero debt and cash heavy. They knew the competition was in trouble and took a couple of key contracts away. Just announced a purchase of the entire company. They doubled in size overnight. The best part,they still have zero debt and are generating cash like crazy...
Chris
MaxedOutMama 04.04.08 - 9:27 am
If you say so, I guess it's true.
this is just funny. From Yahoo
Wall Street shares headed for a higher opening Friday and Treasurys rallied following news that the economy gave up 80,000 jobs last month, the biggest loss in five years.
Although the job losses are a signficant sign of economic weakness, some investors were reassured that the total was not 100,000 or more.
dryfly,
good point about participation...the frustrating thing is that on 1099 you could be making 1/10 of what you made last year, but you sure are participating...same point with real wage reduction...you're employed but bread and gas cost more...
@Marcus Aurelius ,
No. Last month, they made the negative revision on almost all nonfarm employment numbers in 2006 and 2007.
Also remember that China manufacturing is still cheaper...
Not in everything - not in a lot of ways. Been a lot of good articles on just how not cheap China is UNLESS the product is high in low skill labor content.
And there isn't over-capacity in a lot of sectors (materials, energy, food) just in baubles & tchotchkies. There is still a world full of unmet basic needs out there.
Do provide a case in point as to how bad government policy works against The People, look at the pending housing bill provision to extend tax benefits to home builders.
Rather than wasting money giving money back to the corporations responsible for creating this mess, congress could put that money to better use extending unemployment benefits to workers who have lost their jobs (as pointed out by dryfly upthread).
But that won't happen while the third largest contributors to congress is the Home builders PAC.
As part of the monthly pissing in the wind I'll again point out the alternative measures of unemployment - IMO U6 is the better measure ( U3 is the number that everyone talks about and uses in the USA) and the seasonally adjusted unemployment level is 9.1, up from 8.9 in Feb.
Table A-12. Alternative measures of labor underutilization
-K
good point about participation...the frustrating thing is that on 1099 you could be making 1/10 of what you made last year, but you sure are participating
I'm 1099 - if I lose my number one client I go negative income - costs > remaining revenue. I know exactly what you mean.
Oh on the goods producing jobs:
Jan delta: -69 K
Feb delta: -82 K
Mar delta: -93 K
Hope that ain't a trend, as MoM has pointed out we are going to need sectoral changes showing an increase in manufacturing - just hard to see that yet.
I guess this time next year "We're all 1099 now".
craig, thanks for the thoughtful post, a breath of fresh air. I struggle with the same thoughts looking at the data. I do think that we've stabilized the financial sector for now, but a lot of orderly unwinding remains which will hurt profits for the rest of 2008. I don't see the sector doing well overall until 2009 because fees will also be markedly down as deals dry up and everyone retrenches.
Auto is done until we're on the rebound. And I'd be surprised if Chrysler isn't unloaded to a Chinese company by year end as the 3-headed dog seeks to staunch the bleeding. Ford and GM are just going to bleed for a while further. I think they will survive, but will be shadows.
This summer will be interesting for travel and tourism...a big part of the hiring this time around. If it goes as I think (more people staying home), look for unemployment to rise as the season gets underway if it underwhelms. Interestly enough however, foreign workers are having a hard time with Visas this year (I know as I have a place in a resort area) and that may mean that they will try to fill the jobs with US based students.
I'm on the side of a shallow, but disheareningly long recession and I believe it began is December.
Marcus Aurelius,
What MoM said, CR has commented on this as well the B/D adjustment is pure trendology, so when the trend changes it takes awhile to catch up.
jin | 04.04.08 - 9:36 am
I think we're saying the same thing, if not, I don't get your point.
Bottom line, IMO:
The "official" numbers can't be trusted. Unemployment is much worse than the numbers would indicate (current or revised).
someone here said that the Fed has put a floor under the stock mkt. can someone explain that to me? when they brokered the BSC deal, shares went to $2. when they did the BAC/CFC deal CFC is at $5. any bailout assistance will involve wipeout of common shareholders it seems to me.
Marcus et all,
And Under-employmement...going to be a lot of those over the next few years...
dang ipod, u sound dour.
do u still see an upward strengthening in manufacturing numbers?
I sure do but NOT in automotive or building supplies - those areas are shedding faster than ever.
Where is mfg hurting for 'skilled workers'? Aerospace - in places like Witchita and KC... and in ag equipment mfg, like those companies supplying John Deere & CNH.
The mfgrs I know need workers but not entry level - they need experienced machinists & welders & the office mfg-support folks to keep the logistics running (say IT guys with lots of SAP experience).
In the short run they won't make a dent in the jobs lost in automotive alone let alone housing.
They knew the competition was in trouble and took a couple of key contracts away.
Chris, I can tell you that at my company, we're now constantly talking about acquisitions now that the economy sucks, and we're planning on who we're going to target. While everyone else screams about the sky falling, we'll take advantage of that and shore up our position by eliminating some competition. As i've repeatedly said, this is the time to look for value and for those who are wounded, as well as for those who have been punished needlessly along with the bad ones.
I live in a northern NJ wall street town. The economic slowdown & Bear collapse has everybody freaked out.
Most seem to be cutting way back on discretionary spending. Everything - summer camps, private nursery schools, restaurants, starbucks. Layoffs galore are starting too. And not just Bear either. People are really fearful. The bravado is gone.
Incredibly, it seems most were caught of guard. Go figure.
dang ipod, u sound dour
Yes it's raining and gray here, so it adds to my economic outlook. Buckle up because the rest of the year is going to be a belt-tightener. I'd prefer the deep and quick, but this is going to be a grind.
Chris, I can tell you that at my company, we're now constantly talking about acquisitions now that the economy sucks, and we're planning on who we're going to target. While everyone else screams about the sky falling, we'll take advantage of that and shore up our position by eliminating some competition. As i've repeatedly said, this is the time to look for value and for those who are wounded, as well as for those who have been punished needlessly along with the bad ones.
this is a normal response in the initial stages of a downturn. everyone is still flush from the good times and look to redeploy that money. as things worsen they realize things really are serious and then they get more cautious. difficult to pick a bottom.
dryfly,
Or, "We're all underemployed now"...
But I see the same problem. No one's hiring recent college grads...they don't want to invest in training, and believe me they need to be trained both technically and in common sense (you show up on time,...ect.)...I see a need for the right people, but it's hard to get the right people when they are geographically located somewhere else in a house they can't or won't sell...so, I see recovery problems...one of those double maybe triple bounce recessions....of course I think if things don't get sorted out on the solvency front, systemic failure keeps creeping to teh fore...
By the way, there is some countervailing evidence that the job market is not quite as weak as the official stats seem to show. Federal Unemployment Taxes (FUT) are rising YoY. This reverses a two-year trend.
One of the reasons is probably more people cobbling a living by working two part-time jobs. The FUT cap is so low that this would often double the quarterly receipts.
However usually FUT gains lead the economy, and the FUT signal is quite strong. It may be that the B/D adjustment is adjusting some production employment sectors downward.
You can see Treasury receipts (they are published daily) here.
Also freight measures not related to retail are picking up, and so are overall measures, which reverses a two year trend.
I know auto mfrg is bad, and anything related to homebuilding is tanked, but there has to be strength somewhere. The weaker dollar must be leading to some insourcing and enhanced domestic production in at least some sectors.
April's receipts will give us a hint on the small business economy vs the big business economy.
well it sure looks like a perfect setup for a good plunge today: terrible eco data getting a bit more terrible; financials squeezed badly over the last couple of sessions; and finally most important bears no longer expect this market to fall, nah not today!
Angry Saver
You gave the statistics on the change in % of total national Adjusted gross income (nAGI):
Where is the same data on change in % of taxes paid by that same 1%.
Did we inadvertently leave something out?
someone here said that the Fed has put a floor under the stock mkt. can someone explain that to me?
idoc, i believe that the Fed actually put a floor underneath the financials by stepping in on BSC. That stabilized the stock market to some degree and it took the panic and uncertainty away as to what would happen if someone collapsed. We got the answer. That does not mean, however, that the DOW won't proceed further down, just that the panic part of it has stopped.
And acquisition strategy is started now, but executed later as the downturn gets steeper. The watch starts now. We have money and time. We will be fine, and we'll wait until the grind is in full swing. Then we'll make offers that can't be refused. Timing is everything. BTW, when you see a lot of acquisitions start to connsumate, you'll know it's a signal.
CR,
Thanks for that great y-o-y job growth chart. What it depicts is what the bears have been saying about job losses: that in this cycle they are likely to be shallow since job creating was relatively weak.
The takeaway from the graph, IMO, is that recessions have typically begun at or a little higher than the weak y-o-y growth we are seeing today. The bull's claim that we need "200k lost a month" to classify as a true downtrend is just plain wrong.
MOM, I'm going to say that the increase in FUT is from what you suggest, and that is related to export sectors. Also the freight numbers indicate the same thing. The only bright spot is that the low dollar has expanded this segment. Domestic demand is in the crapper and will be for some time. Look at the outbound ratios for some of the story.
ipod
your acquisition strategy is perfectly reasonable.
i agree much of the panic has been taken out temporarily. but that was only one of many so far in the early stages (think CFC, N. Rock, etc). the real question is will they be able or allowed to keep it up. i think the checkbook has a limit. obviously biased but i think buying stocks esp. financials is risky esp. given no evidence that shareholders will be bailed out as well. its those bondholders that should be smiling.
diogenes,
I didn't leave anything out imo.
The point I am trying to make is that record home ownership rates and record housing prices don't match the reality of the declining real incomes of the majority.
Too much debt, too little income. I just don't see a housing recovery.
I know auto mfrg is bad, and anything related to homebuilding is tanked, but there has to be strength somewhere. The weaker dollar must be leading to some insourcing and enhanced domestic production in at least some sectors. - MOM
Aerospace is insane right now. The planes are so old the flying stock needs complete turn-over. The supply chain to Boeing & Airbus are going crazy trying to just keep up.
Similar thing in commodity machinery - ag & such. Its a world demand driven phenomenon.
Both industries ramp up very slowly so couldn't usefully absorb the laid off from other places... I mean how many mortgage brokers you think can run high speed milling machines used to make air frame parts? These machines will take a 2000 pound piece of aluminum and turn it into a 200 pound part and 1800 pounds of 'metal chips'. The cutters run at 40,000 rpm. One mistake and its 2000 pounds of scrap and lost machine time on a $5MM machine.
The weak dollar is helping but it took a couple decades of stupid policy that got us here - it isn't going to reverse in one or two job report cycles.
In past recessions the decline was sharper/faster - is this because B/D model is different now ?
dry
thanks for your great insights. why would farm machinery to Deere be weak? esp. given the ag run?
Yal -
According to the BLS's website, the Birth and Death model was only implemented in March 2000.
Maxed out Momma,
I agree in that I see "failure to confirm" stats all over the place. Maybe the most notable is non-financial corporate earnings, which are holding up despite cost inflation and weakening growth. Now, I know that the domestic portion of these is weakening, but where is the margin contraction from higher input costs?
So we have a situation in which a number of high-conviction variables spell "deep recession", but the fact is they have not yet gained traction.
Its like my daughter: when I as her if she's done her homework, she answers, "yes, but not yet."
So the real question, in my mind, is what is the countervailing force, the thing that is stopping the negative feedback loop of delevering to take hold?
Another intersting article from the folks at Wharton:
Gaming the System: Are Hedge Fund Managers Talented, or Just Good at Fooling Investors?
that Geithner looks too young for the job IMO. maybe its my envy of success for a peer. seriously though, he looked and spoke with true fear in his voice yesterday and its quite clear hhe in fact is a more important cog in this Fed machine than most realized. i thought they'd try to mince words alittle more to prop up confidence in the economy but they laid it all out on the line IMO. didn't do alot for my confidence. continue to be amazed at the bulls.
A theory about weak ag machinery:
Still takes credit to buy expensive machinery...most farmers have in the red for decades...banks might not be loaning, even to this sector...also, it's possible that profit is profit with or without more cultivated land...
So the real question, in my mind, is what is the countervailing force, the thing that is stopping the negative feedback loop of delevering to take hold?
refusing to mark to mkt.
hanks for your great insights. why would farm machinery to Deere be weak? esp. given the ag run?
idoc | 04.04.08 - 10:02 am | #
It isn't - I talked to a buyer there who hasn't come up for air since last year. They are 30-40% ahead of forecast in the ag division and forecast was very aggressive.
I bet the res & comm lawn tractor & construction equip divisions are plenty weak - that and their 'finance units' (similar to how GMAC was set up)... but they are making tractors & combines - balls to the wall.
Ag is still their largest division though residential & commercial was catching up in the 'hay daze' of the housing bubble. I don't call on them so don't really know.
More jobs lost? That must mean the market will only go up! We're in a "mid-cycle slowdown" where we crash into a wall at high speeds, which slows us down. Then, everything will get better and we'll all go back to flipping houses to each other that nobody can afford since that is a "recovery" in the eyes of the Powers that Be. Sure, gas will be $5 a gallon, but that's not part of inflation calculations anyway.
No, please stop being so gloomy and BUY something today - Wall Street and Realtors really need the fee money!
"Overall this is a very weak report."
You betcha.
Anybody catch Mark Haines on CNBC this morning? It would appear that the average job loss for a third month of losses, for those periods leading to or including a recession, have been over 100,000. Therefore, "this report wasn't all that bad!" LOL!!
Energyecon,
That Wharton article was originally published a year or two ago. Funny how we didn't hear about it on CNBC though.
The 2/20 compensation formula is a giant scam. In aggregate, this will be a big loser for investors, but GREAT for the hedge fund mangers.
These numbers exist for the same reason that the five day weather forecast exists. People want to know.
Someone or something will step in and supply the information. As to whether it's accurate, or even well meant, well that's another story.
People (like Sebastian e.g.) will cite these numbers when it suits their purposes. When it doesn't, they'll ignore them. The whole thing is too ridiculous on the face of it.
Still takes credit to buy expensive machinery...most farmers have in the red for decades...banks might not be loaning, even to this sector...also, it's possible that profit is profit with or without more cultivated land...
Not now, not at these prices - do the math.
Most farmers own their land without a ton of debt. They are cash poor but land rich. That is changing as newbies come in and buy land at $5K/acre but that isn't the majority of them yet.
So a guy has an average farm say a measly 2000 acres - and plants corn on it... and it produces lets say 180 bu/acre. He sells it at $4/bu -> $1.44MM dollars revenue (prices are actually higher but elevators price is lower plus transport cost).
Now lets say it cost him $2/bu inputs... might be more, might be less - depends on how intensive his practices are. Most guys I know are 'minimum input - no till, some fertilizer, some herbicide & pesticide but not much - too expensive... That means the farmer has a net of about $700K on that farm this year.
Understand his 'lifestyle costs' - how he chooses to live - are about a tenth of that (lives as if they had a $70K/year salary - or LESS).
You can pay down debt & buy new machinery with that. And the smart ones are - big time. The dummies are buying land at $5k-$6K an acre on debt with their net as 'down payment'. Those folks will be the victims of the NEXT farm crisis in a decade or so.
Automotive is a complete disaster - worst I've ever seen it & I saw it bad going into the early 80s recession. They are going to continue to roll out new product and try to kick'em when they are down. Recessions are great opportunities to kill off your competition.
But they still see more slowness ahead.
dryfly | 04.04.08 - 9:23 am | #
Maybe the Big 3 automakers will come up with something innovative, something that actually improves fuel efficiency. But that's asking too much. I don't see how the top management at these companies can do any more harm, but I'm sure they won't fail to disappoint.
Anybody catch Mark Haines on CNBC this morning?
When he stumbled onto the set or fell off his stool afterward? Two and a half minutes can be a long time to go between drinks.
In support of Dryfly's comments on ag, ag loans are doing very well. I don't think there is any problem getting credit for experienced farmers who are aren't loaded down with debt.
Wait a minute, the market has turned down on bad news? I'm getting confused. Bad news = good for stocks; Good news = good for stocks. What am I missing?
Interestly enough however, foreign workers are having a hard time with Visas this year. [ipodius]
Not to mention foreign visitors/tourists. With additional hoops to jump through (almost literally!), they may simply give up, in spite of the weak dollar, and vacation elsewhere. Who wants to take the chance of being misidentified at the border and sent to Gitmo? Even American citizens can have trouble re-entering the country. Do you have any unpaid parking tickets? Watch out.
I don't see how the top management at these companies can do any more harm, but I'm sure they won't fail to disappoint.
I talked with mid-level managers in auto supply chain yesterday... they can tell you first hand those top level execs never fail to disappoint.
BTW - if they decided on great new product today, it wouldn't hit the showroom for 2-4 years... that's how long it takes to really switch over everything.
dryfly
Would you believe that a coconut estate/farm costs around 12K per acre.
Some areas can be 20K per acre !!
Apparently same prices in India too.
Coconut Estates
approx 100Rs=1USD
David - I believe one of the biggest factors here is that the consumer credit bubble (which was basically kept afloat by home prices) overshadowed a production side of the economy which had been in recession for several years.
There is a duration limiting factor on recessions. After a while, spending has to increase or companies go bankrupt. The weaker dollar is presenting some opportunities, and the better companies will expand into this. Companies weighed down with big debt are more likely to collapse.
Also, I believe you will see foreign private capital coming into the production sector in two ways. The first is buying portions of companies with hard assets and production capacity. The second is insourcing to cut mfrg costs. China's relative advantage has been greatly cut, and some EU manufacturers will try to contract for parts, etc, in the US to defray the problems of the higher EU.
Would you believe that a coconut estate/farm costs around 12K per acre.
Some areas can be 20K per acre !
Speculation - its not just for Americans.
dryfly writes:
I talked with mid-level managers in auto supply chain yesterday... they can tell you first hand those top level execs never fail to disappoint.
BTW, I was reading how the assumed return on GM pensions is around 8.5% or so. How are they going to get that
with the 10-year at 3.50% and the 30-year just over 4%? Those assumptions will have to come down, resulting in more pension costs and less net income.
The dummies are buying land at $5k-$6K an acre on debt with their net as 'down payment'. Those folks will be the victims of the NEXT farm crisis in a decade or so.
dryfly | 04.04.08 - 10:20 am | #
A lot of the old timers I know are smiling right know as unnamed,out of state investors are buying up farmland at insane prices. I have heard around 10k or more in NW Ohio for top land. All we need is a couple of good years of production and commodity prices will fall back. All lot of these idiots are gonna loose a shitload of money on these deals.
As a FYI,the exact same land could be bought for 2.5-3k per acre in 02-03.
Seed corn is going out the door at record levels according to the guy I know in the biz. If you can drop a drill or planter in the ground its getting planted this year due to high prices.
Chris
and some EU manufacturers will try to contract for parts, etc, in the US to defray the problems of the higher EU.
MaxedOutMama | Homepage | 04.04.08 - 10:42 am | #
At lunch yesterday a domestic US producer was telling me they can now compete with eastern European producers - as it should be, those eastern Europeans are every bit as well trained & skilled and productive as our folks, why should have they been so cheap all along? Now they aren't 'cause their output is priced in euros mostly.
And those workers can now afford to actually BUY THINGS - mean more price pressure for us.
Rebalancing is good but it isn't painless.
Billy Shears,
GM could simply use leverage to bolster the returns on some ABS. Problem solved.
I second Cobra's 10:47 post - you'd have to want to burn money to buy land at today's prices. Casey Serrin must have discovered farming - its the NEW 'Green Acres' show...
At lunch yesterday a domestic US producer was telling me they can now compete with eastern European producers
Let me add - that is for parts made in US & landed in Europe. The high euro is killing their mfg - the ECB won't let this last forever... unless they got Rubin on the payroll.
any bailout assistance will involve wipe out of common shareholders it seems to me.
The main thing was it didn't wipe out the bond holders. Hedgies that we're short CDS got their head handed to them and then came the margin calls. Most most were also short stocks, long commodities.
I had a late night drive through the dark night in the northern Rockies last night. The call in shows around the west were loaded with people who have suddenly figured out that we are in for rough sledding. This is a big change from a month ago when people were oblivious. Public opinion is getting very dark.
Well here is a interesting one for the group...My Fedex Ground guy just dropped off some needed stock orders. His truck was packed top to bottom,front to back. I asked how busy he has been. His response "More freight than at anytime in the last 4 YEARS". And I am in one of the worst home markets,SW Florida.
Well,time to get on with the head gasket job...Nah,it's Friday,truck will still be here on Monday.
Chris
MoM,
So we are seeing the flip side of the recovery, one in which the manufacturing recession actually ebbs. This suggests that some of the pain of the consumer-led manufacturing adjustment will actually occur overseas, esp. in China. Its interesting because we have also exported our inflation to China. So they will be presumably caught between falling demand and rising costs: an ugly situation. Which leads to the conclusion that they need to decouple, if only to solve their inflation problem. The way to do that is to revalue their currency by 30% or more.
People scoff at this idea, and yet it is the logical conclusion to our monetary policy since 2001 (when China was actually deflating).
China's inflation rate is a pressing political issue, and it can no longer be ignored by their government. Imagine if we have rice hoarding an the attendant unrest heading into the Olympics this summer.
Cobradriver | 04.04.08 - 11:04 am
That's interesting. I was talking with an old friend of mine over the weekend - he has worked for UPS for the past 20 years, or so - and he had the opposite take on package/parcel shipping. He said that he can't remember a time with less activity.
Maybe it's something in the business/market models.
Since we seem to have a fight about the reliability of the unemployment figures whenever they're released, is there not any data on unemployment using the ILO definition? This may have its own problems, but it is comparable over time and between countries, and should be more isolated from political massaging.
"The high euro is killing their mfg - the ECB won't let this last forever... unless they got Rubin on the payroll."
Wasn't the devalued dollar the primary subject of Sarkozy's trip the the US last year? Or, did he visit New Hampshire to see the black flies?
Cobradriver,
Make sure you have a good torque wrench and the correct bolt tightening sequence for your cylinder heads. Warped heads, while common on CNBC, are not desireable for your car's engine.
dryfly 9:23
I am willing to bet that company you met with would be Johnson Controls...if you have cash when your industry goes into a downturn then you have great opportunities to take advantage of distressed competitors.
Day of reckoning has been delayed:
Lenders Buried By Foreclosures Let Late Borrowers Stay in Homes
Lenders Swamped By Foreclosures Let Homeowners Stay (Update1) - Bloomberg.com
Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody's Economy.com, a unit of New York-based Moody's Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.
We don't have a sense of the magnitude of what's really going on because the whole process is being delayed,'' Zandi said in an interview.Looking at the data, we see the problems, but they are probably measurably greater than we think.'
In my area in India, the price of acre varies from $10K to $250K. Unthinkable. It is going to raise even further after the pay hike recommended by sixth planning commission. India and China are well seated and safely secured on hyper-inflation train and the train now moves at the speed of 200 miles an hour with increasing speed. The best part is the train doesnt have any break at all.
That is why I always feel that irrespective of the forex they have, BRIC countries will blow it in few years.
Deflation and depression in US and developed countries while rest of the world going through hyper-inflation.
"Make sure you have a good torque wrench and the correct bolt tightening sequence for your cylinder heads. Warped heads, while common on CNBC, are not desireable for your car's engine."
I work on over the road/heavy duty stuff. All head bolts in our apps are torque to yield. Basically a low torque setting and then a certain number of degrees of turn added after.
You really don't want to know how I add the needed 90 degrees of turn to the current job. Lets just say diesels are pretty much impossible to screw up.../cough/impact/cough/
Chris
OT: I will be on CNBC today talking about the out look for 1Q earnings at 3:30 NY amd 2:30 Chicago time today if any of you are interested.
"Lets just say diesels are pretty much impossible to screw up"
Let Bernanke have a shot at one and I can guarantee a serious part failure!
The LEH youtube video by mortgage guy still has legs today all over the net. Wish they would play that baby on CNBC or the nightly news.
SAN FRANCISCO (MarketWatch) -- Appaloosa Management on Friday dealt a harsh blow to Delphi Corp.'s plans to emerge from bankruptcy when the hedge fund pulled out of its agreement to invest $2.55 billion in the auto-parts supplier
Dirk van Dijk, Remind 'em goldilocks is a fairy tale. Employment losses, inflation, capital destruction, housing bust, severe leverage contraction... are all real economic feeds.
The LEH youtube video by mortgage guy still has legs today all over the net. Wish they would play that baby on CNBC or the nightly news.
JJL
Got a link?
Perhaps now--at last--Larry Kudlow will admit that he wears Speedos on holiday, "to accentuate the yield curve."
Cobradriver,
What's your opinion of Detroit Diesel vs Cat or Cummins engines? I used to work for a DDA regional service co and it would be interesting to hear from someone else the relative merits.
Southern California farmland is selling for $50,000 - $80,000 an acre. went for $15,000 - $25,000 pre bubble. The ground rents for $2,000 - $3,000 an acre and is in an ag preserve. Producers grow fresh fruits and vegetables that have all of the input cost increases and none of the price strength of commodities.
CEO of RE/MAX on CNBC - sez everything's OK now. Maybe it's time for a bigger plasma TV.
Seems to me that the strength in export-oriented manufacturing will likely not offset the losses elsewhere. Those that are adding jobs also tend to be less labor-intensive than those losing them, too.
Still a net negative for employment.
I think these job losses are positive for the markets: the more jobs lost, the more expansionary the recovery.
Mr. Mortgage video:
http://youtube.com/watch?v=tebO2v3qBVY
Anyone know the current death rate in US as a population variable?
ipodius,
Still can't grasp your optimism regarding the IBs. The business model is broken and their assets are crap. Just because they have a large credit line with the Fed doesn't mean they're still not going downhill, it just delays the inevitable.
Has anybody else been watching the impolde in Australia - quite fastinating!
The Australian Securities and Investments Commission has alleged in the Federal Court that as his house of cards crumbled, Opes chief executive Laurie Emini attempted to protect six of his top clients from margin calls of more than $200 millio
woops here is a link
Opes debacle wreaks havoc | The Courier-Mail
"Maybe the Big 3 automakers will come up with something innovative, something that actually improves fuel efficiency."
The Chevy Volt might work -- it's a simpler version of a hybrid that would probably be available cheaper, and maybe be just as efficient if not more so. They advertise it all the time as "coming soon."
But that's because they're depending on the Japanese for the battery tech, and it's not there yet. So yes, it's very likely this will be another non-starter. Par for the Detroit course.
You really don't want to know how I add the needed 90 degrees of turn to the current job. Lets just say diesels are pretty much impossible to screw up.../cough/impact/cough/
Back when I walked the shop floor at the ethanol plant I always carried a 'cheater bar'... But then we had manholes into vessels we were pulling & then replacing that had a ring of 2" nuts holding them on. It was a rush to use a 3 foot long 'crescent wrench' with a 6 foot pipe on the end as a cheater. We had to bust them loose before the impact wrenches could even make 'em budge a degree.
That's probably why all their engineering hires were young rural guys like me (back then any way - not so young anymore). More brawn than brain.
Death rate @ 8.26 per 1,000 of American population
Cobradriver
the fedex guy didn't tell u that 4 out 5 of his driver buddies were laid off.
"Let Bernanke have a shot at one and I can guarantee a serious part failure!"
At this point in the cycle, Bernanke and Co. have done an absolute incredible job of keeping the markets intact and retaining faith and order in the system.
If you want to use the word "shot", that is what should be done to Greenspan.
Or at least imprisoned for gross negligence.
JJL | Homepage | 04.04.08 - 11:34 am | #
Bernanke = Repair get done but engine runs rough and still needs further fixin.
Greenspan = repair gets done and wheels fall off...Oh shit,wait....
BWHAHAHAHAHAHAHAHAHAHA
I'll be here all weekend folks(supposed ta rain)
Thankya,
Chris
I think these job losses are positive for the markets: the more jobs lost, the more expansionary the recovery.
Exactly. Couple that with the apparent recovery in commodity prices and the fact that producers have difficulty passing input increases to consumers, and you have a nice formula for widescale earnings collapse. That's also quite bullish for the markets, as there's a new paradigm in the air.
dunham - thx for that.
Would be interesting to track a few of these to see if/how they were bundled and/or sold and of course their representations to the credit agencies
Don Coxe this week. Quite good.
http://events.startcast.com/events/199/B0003/#
tj & the bear writes:
Seems to me that the strength in export-oriented manufacturing will likely not offset the losses elsewhere. Those that are adding jobs also tend to be less labor-intensive than those losing them, too.
Still a net negative for employment.
tj & the bear | 04.04.08 - 11:41 am | #
I agree that export related mfg (and also domestic mfg that is now competitive vs import) will NOT be enough to offset this trend in the short run... in the long run though the weak dollar will have an effect - we will consume (buy) less. The economy will realign around those new set points - with a higher percentage made here, a lower percentage made there but overall a lower standard of living AND less consumption by Americans ON AVERAGE.
I won't be terrible either - a lot of our consumption has been just plain stooopid... doesn't make us any happier or live any better really - just made us broke.
Those consumption patterns will change whether we like it or not but doesn't have to be the end of the world.
At this point in the cycle, Bernanke and Co. have done an absolute incredible job of keeping the markets intact and retaining faith and order in the system.
Yes, Bernanke has shown that even the biggest elephant can be covered if you have the right rug.
Yes, Bernanke has shown that even the biggest elephant can be covered if you have the right rug.
tj & the bear | 04.04.08 - 11:55 am | #
You making fun of his bald spot?
United States
https://www.cia.gov/library/publications/the-world-factbook/print/us.html
Population:
\t301,139,947 (July 2007 est.)
Population growth rate:
\t0.894% (2007 est.)
Birth rate:
\t14.16 births/1,000 population (2007 est.)
Death rate:
\t8.26 deaths/1,000 population (2007 est.)
Life expectancy at birth:
\ttotal population: 78 years
GDP - real growth rate:
\t2.2% (2007 est.)
GDP - per capita (PPP):
\t$46,000 (2007 est.)
Labor force:
\t153.1 million (includes unemployed) (2007 est.)
Unemployment rate:
\t4.6% (2007 est.)
Inflation rate (consumer prices):
\t2.7% (2007 est.)
Public debt:
\t36.8% of GDP (2007 est.)
Current account balance:
\t-$747.1 billion (2007 est.)
Debt - external:
\t$12.25 trillion (30 June 2007)
Market value of publicly traded shares:
\t$17 trillion (2005)
a public service of TPT
little timmy
People take what they want to take,'' McGee said.They feel that they're owed.''
i still say this whole debacle is about mistrust and lack of confidence in the whole system. it has permeated our entire system from top (Fed supposedly illegal bailout of BSC), Bush's lack of domestic interest, to the middle levels of our financial system (mortgage lenders, regional banks) and down to the consumers who are walking away and defaulting on everything in record numbers.
this recipe does not bode well for our financial system, not to mention our social, moral fabric.
idoc,
THAT's why the Fed actions aren't helping. They're not exposing and dealing with the problems, they're helping hide them. Hardly what we advised Japan to do. Guess "practice what you preach" is lost on the Fed.
"What's your opinion of Detroit Diesel vs Cat or Cummins engines?"
All the majors are pretty good on the heavy side. We happen to be running Detroits and Cummins and both seem fairly good. Just did a in frame on a Detroit with 2.6M miles. The bearings looked new. Only major repairs to that point were injectors at about 1.6M and a turbo at 1.8M.
If ya maintain em they are pretty much bulletproof.
Now the bad news. Urea injection/particle traps coming in 2010. Nightmare of unfathonable description. I can't go into details but lets just say we will be keeping current rigs on the road until probably 2015 at the EARLIEST. I don't mind emission stuff but lets just say if some breakthroughs dont come around it will be a truly ugly model year.
07's are saddeled with particulate traps alone and they are a nightmare,not to mention costing 1500.00 each...
Chris
all those hidden foreclosures are going to cause big problems down the line. there was a good debate on Market Ticker yesterday about how banks are moving REO properties into holding companies once again avoiding bringing them on balance sheet. what would you rather see on your own balance sheet:
People take what they want to take,'' McGee said.They feel that they're owed.''
I find it funny that all these coastal 'ownership society' types find it surprising.
Anyone who grew up in a company town knew forever that we were all 'owned'.
Nothing ever changes generation to generation. Enjoy the ride.
"I think these job losses are positive for the markets: the more jobs lost, the more expansionary the recovery."
/sarc
You forgot the sarcasm tag.
S N writes:
In my area in India, the price of acre varies from $10K to $250K. Unthinkable. It is going to raise even further after the pay hike recommended by sixth planning commission.
S N,
What part of India is that?
If this continues, we're going to need a new government program. I'm sure there are a few in the planning stages just-in-case.
the fedex guy didn't tell u that 4 out 5 of his driver buddies were laid off.
idoc | 04.04.08 - 11:49 am | #
I did ask him this he said no layoffs. So who knows?
Chris
TPT,
The BigPicture states: Merrill Lynch North American Chief Economist David Rosenberg points out a simple but overlooked fact about economic growth: The US population is expanding 1.0 - 1.5% per year. Any GDP growth of less than that means that on a per capita basis, we are contracting.
Of course, that completely ignores the fact that the first 2% of GDP is almost entirely due to things like the benefits of "free checking", so it's actually much, much worse.
Greenspan= 15 pound eaton roots supercharger applied to credit markets
Bernanke= Nitrous added for extra power for investment banks
Either way, extended high RPM operation will ALWAYS result in excess heat and eventual engine failure. Debating whether we throw a rod or drop a valve is useless.
There were fewer jobs in March than there had been five months earlier. In the last 50 years, whenever there has been an employment downturn like the one of the last few months, a recession has followed.
Bernanke = Repair get done but engine runs rough and still needs further fixin.
More like you might get a couple of more miles out of it but you are gonna need a new car soon bc the engine is fu--ed. The hyper leverage system is broken and cannot be fixed, HB and IB, and bussiness modeles are just broken, going forward.
despite the recent runup there is some real price weakness in the mid size banks going on right now. FED, FHN, DSL, CNB, WM. short all except FED
And to keep on topic...
Looks like some MBA grads are gonna be hosed too...
BusinessWeek
Bear Stearns Rescinds Job Offers
Friday April 4, 8:08 am ET
By Alison Damast
My daughter has some friends in that group - graduating in math/c sci & have offers w/ big IBs. I bet more than a few get pulled back.
Pork and more Pork
Now huricane victims can get with the housing bill cause they werew victums of subprime , and money for renewable energy cause they too were vicums of the subprime, and - bloddy hell!
The article requested is no longer available.
consumer prices rose 4 percent over the same period!!
Tanta/CR,
Can you give us a trend graph for consumer price increases with unemployment trends with housing starts, all in one nice little 4 year chart please?
dry
topic? what topic?
and djia is green..I believe were all safe now!
blueridge said: "Interesting how the amplitude of the spikes in unemployment starts to shrink in the early 90's - I suspect this is coincident with changes in the way unemployment statistics were reported - starting about then."
I'm certain that it's not. Economic measures like GDP, CPI-U, interest rates, as well as unemployment have become less-volatile over the past couple of decades.
Which is completely logical. From the very end of the 1960's to the beginning of the 1980's inflation was both high and volatile, and the Fed policy responses were "slam on the gas, slam on the brakes," exacerbating the swings.
Conditions aren't the same now, so it's completely normal for the economy to be more steady.
Sebastia
Wow, the MSM really has the fine art of turd polishing down pat. Markets in the green on news that the economy lost 232k jobs in the last three months and the data was much worse than previously thought. I give up....
From the very end of the 1960's to the beginning of the 1980's inflation was both high and volatile, and the Fed policy responses were "slam on the gas, slam on the brakes," exacerbating the swings.
Conditions aren't the same now...
Ya the new Fed models only come with a gas pedal.
dryfly | 04.04.08 - 12:11 pm |
As much as that sucks at least they didn't have a couple of months to start to settle in,spend some cash and then get let go.
Chris
Conditions aren't the same now, so it's completely normal for the economy to be more steady.
Sebastian
Seb - if nothing else, I admire your conviction
YAY! Dow's in the green! Nothing matters anymore.
Dryfly, there was an article in Bloomberg a couple of weeks ago talking about the boom in offers for geology and chemical engineering grads for petroleum companies. Mark Twain was right, history does rhyme, it seems like the late 70's/early 80's all over again.
Ya the new Fed models only come with a gas pedal.
Yes, but if you take your foot off the pedal, you eventually slow down. It just takes longer
Barley writes:
Pork and more Pork
Man,I just read that article and it gave me a headache.
Chris
David Pearson This suggests that some of the pain of the consumer-led manufacturing adjustment will actually occur overseas, esp. in China.
Greatly rising inflation for everyone.
It's led by food costs at the moment in Asia. The rice break last week pretty much put paid to any hope of a less inflationary environment. That will send food costs shooting up.
The global counterbalance to inflation was exporting labor and mfrg to economies in which either the government subsidizes food and fuel costs or the worker spends more than 50% of their income for those items.
The governments are stepping up subsidies but they can't do it enough. The workers need to be paid more, and now that inflation comes back double-barreled to the developed world.
These commodity prices are not sustainable. Either they deflate Indonesian/Thai etc currencies, or they break.
You cannot escape fundamental economics. Food prices inflated over 36% last year (basic foods).
What the average American misses is that many of these people spend their food budgets for the basic grains and oils, and those are the costs that are shooting through the roof.
This carbon-tariff crap and the biofuels push is making matters much, much worse. The drive to limit food exports or slap on high export tariffs is going to escalate basic food inflation.
The possibility of an Asian currency crisis combined with a contraction in world trade now exists in 2009/2010. The Indonesians are going to be spending well over 4% of their GDP and over 12% of their gov. budget just for basic consumer needs subsidies in 2008. It's not freaking sustainable. It's the equivalent of servicing about 80% of GDP of debt.
dryfly said: "Ya the new Fed models only come with a gas pedal."
And speaking of applying the gas, I think the big takeaway from today's non-farm payrolls number is that we're definitely looking at at least one more Fed easing.
Bernanke has got to be scared blind by the latest data, although cooler heads would point out that even -80,000 net jobs lost in a month is still closer to a rounding error than a meaningful change. And that the Fed's most-recent and dramatic actions haven't had nearly enough time to flow through the system and make an impact.
Secondary takeaway: CR is going to have to shift his "probable recession" bars to the right on his charts, because we're still not there. (I was girding myself for a net -200k to -300k March job-loss and abject humiliation as I was forced to abandon my "no recession" position. So until the numbers are subsequently revised to show that I got shot, I dodged the bullet and remain unharmed.)
Sebastia
Pondicherry. Surrounded by Tamil Nadu (Chennai aka Madras).
And speaking of applying the gas, I think the big takeaway from today's non-farm payrolls number is that we're definitely looking at at least one more Fed easing.
No argument there.
Another strong case for yet another deep rate cut is being made by the street! Fed's ability to prop the banks with rate cuts is nearing the end. Wonder what's the next move? If the US economy doesn't turn around in the Q3, the whole world will be recessing! Our govt has wildly succeeded in leveling the field for the rest of the world; not by lifting the rest of the world up but by bringing the US down to the rest of tye world. Go figure!
Another strong case for yet another deep rate cut is being made by the street!
Yup, I think one more cut. But they will surprise and only cut by .25 as they will refocus on the dollar. They have been squeaking about "taking time to work through" and had 2 dissenting votes last time. So I think they will be in pause mode. That and they are at the point where cuts just won't matter.
Great - so we can prop the stock market with rate cuts through the end of June...which would probably put us at 1% or slightly below. Does anything really think we'll go to zero?
How is Japan able to hold their rates near zero for so long? Was their inflation contained because of the cheap chinese imports?Perhaps they don't consume as much as us.
I wonder if Fed can answer why Japan's economy and the stock market remained stagnant for almost a decade now? Despite it all, why has the Yen remained strong? Is it because of their savings?
Like the "Yen carry trade", are we going to witness a $$ Carry trade boom? The only problem with that is nobody in their right mind really wants $$ at the moment. What a mess!
I dont hink we should have an unemplowmnet report because we all know its bogus. If it werent for gvt hiring the jobless report would be closer to 100k.
WE SHOULD HAVE AN EMPLOYMENT REPORT THE WAY THINGS ARE GOING.
When will all this craziness end. I am truly sick of it.
I was girding myself for a net -200k to -300k March job-loss and abject humiliation as I was forced to abandon my "no recession" position-Sebastian
Come on, did you really think a -200k number would print today? Do you think that a number like that will ever be allowed to print by the new "stability protection" arm of the FED?
JJL said: "...Do you think that a number like that will ever be allowed to print by the new "stability protection" arm of the FED?"
Great, a new bear-blogosphere topic! How the "new" Fed is incompetent because it allowed non-farm payrolls to show a loss of -232,000 jobs in Q1.
S.
JJL,
You have a point. They say FED is autonomous, but I have no doubt the FED, Labour, Treasury, & Commerce collude all the time. And the revisions seem to be worse most of the time ....
Otherwise what will they really discuss when they meet all the time?
If they are so autonomous why would they even meet?
novice writes:
How is Japan able to hold their rates near zero for so long? Was their inflation contained because of the cheap chinese imports?Perhaps they don't consume as much as us.
They didn't consume near as much - they were net savers even considering their gov't deficits. Plus they were net exporters. ZIRP helped re-weaken their currency after Plaza to make sure they didn't consume & that they exported.
Saving & producing does NOT describe US practices quite so much.
we will be here soon...
YouTube - The Job
dryfly,
Do you believe in the decoupling theory? Weak dollar definitely could help the manufacturing but it still requires strong international demand. And I'm not convinced it is going to continue. Also, other currencies race to bottom is not out of question.
In Eastern Europe, the consumption growth was enormous and clearly unsustainable (20% growth YoY of retail sales in Poland for instance). I heard similar stories about other developing countries. It is not supported by productivity growth but by credit bubble. There is going to be painful rebalancing in developing countries as well.
Is there employment data that tracks how many jobs folks are working to pay bills? I know several who have lost their 'second' job. Yes, they're still employed but they're no longer making enough to cover their monthly expenses.
Novice writes:
I wonder if Fed can answer why Japan's economy and the stock market remained stagnant for almost a decade now? Despite it all, why has the Yen remained strong? Is it because of their savings?
This is really puzzling to me, too, why Japan experienced so much more deflation than Western countries. The only things I can come up with is the boom was greater and the BOJ didn't react as swiftly and deceicively in countering deflationary forces than European CBs or the FED. But I'm not sure.
Anyway, we do not need to worry about deflation for decades to come as we're in inflationary mode.
O-Joe
Novice just expressed one of those beacon phrases.
"No one in their right mind really wants dollars at the moment."
Ahem.
here is my prediction for the dollar based on the technicals/charts
Within the next two weeks ... the U.S. Dollar will finish bottoming out and start moving up.
The Relative Strength indicator shows that the Dollar reached an oversold level on March 17th. Once the Dollar hits an oversold level, the typical pattern is for it to consolidate for a few weeks and then start an upside move.
Do you believe in the decoupling theory? Weak dollar definitely could help the manufacturing but it still requires strong international demand. And I'm not convinced it is going to continue. Also, other currencies race to bottom is not out of question.
There isn't a finite pot of demand out there - that is the fallacy that BOTH the coupled & decoupled camps make. In that respect they are 'coupled' buy in a loose 'hydraulic' sense not in a hard fast 'mechanical' sense.
So I expect Asian INTERNAL demand to stay fairly strong regardless - they need water systems, roads, telecomm etc. Those demands are not going to go away just because we don't buy as much cheap plastic crap at WalMart.
Also a lot of the effects from a weak dollar is NOT direct export but domestic import substitution... by that I mean a company like John Deere or Caterpillar goes back to buying a part made in the US that a few years ago they had sourced in Asia... I see that happening about as fast as mfgrs can afford to retool here. The two forces in balance here are the weak dollar (pushing retooling) and the difficulty in the credit markets (pushing against retooling). In short the weaker the dollar the more the balance pushes toward retooling. I see it happening every day.
So will Asia feel an effect? Yes.
Will it be negative? Yes - but not 100% drop dead 1:1: coupled, some slow down but not complete slow down 'cause they have their own needs to fill too, separate from us. I know the US thinks we are the only market, the only demand possible - ain't so. Less so everyday.
Will there be some orders to US exporters lost due to some of this 'Asian slow down'? Sure - but a lot of it will be made up by the domestic 're-sourcing' resulting from the import substitution I mentioned above.
What is even more important to remember is the lag effects - it can take YEARS to resource a supply chain. So we are just seeing the beginning of what is likely to happen. It could very well be that the dollar - in aggregate - is plenty weak enough already to accomplish the majority of the re-balancing required. Probably what the world needs now is more re-balancing between Asian currencies & euro (Asians up in aggregate & euro down some). The dollar is stuck in the middle - too weak against the euro, still too strong against Asia.
The last sentence alluding to the currency race to the bottom is the potential problem that could mess up re-balancing. We'll know if that is a threat if Asian CFB dollar reserves start to expand dramatically even as their exports to us slow - that would tell you they are buying dollars even if they suck just to weaken their own currencies. That would not be a good sign - it would suggest more instability ahead.
While the job loss is not as extreme (yet) as in the previous recessions, as Ritholtz mentions, the job creation was the weakest for a recovery since WWII. Remember, in previous recoveries we had sustained monthly job creation of 300k to 400k, even during the Carter years. I think we only had one or two months during the past 5 years that even approached that kind of growth.
So while we may have "only" 100k monthly job losses for the time being, on a relative basis the damage to employment is just as bad as in previous recessions.
First we had "no chance of recession."
Then we had "perhaps a slowdown" for 1 or 2 quarters.
Now we have, "but it will be short and shallow" and 'mild' compared to previous recessions.
The next forecast will be, "yes, we are in a very bad recession, but that translates to a rebound which will be that much stronger.....in 2009 or 2010 or..."
why Japan experienced so much more deflation than Western countries
Simple. In the late 80s the Japanese started living @ American quality-of-life standards (or better!). The Lost Decade featured people going back to how they lived 1965-1985.
Tanta, CR,
My deepest apology for reposting this, but I need to expand on an idea:
Jobs: Nonfarm Payrolls Decline 80,000 in March
GDP - real growth rate:
2.2% (2007 est.)
GDP - per capita (PPP):
$46,000 (2007 est.)
Nonfarm business sector (Productivity and Costs)
The nonfarm business sector is a subset of the domestic economy and excludes the economic activities of the following: general government, private households, nonprofit organizations serving individuals, and farms. The nonfarm business sector accounted for about 77 percent of the value of gross domestic product (GDP) in 2000.
What about economic growth data on farms related to this recession, after all, we are going into the Next Dust Bowl.
Re: Farm Prices Report
U.S. farms getting bigger, numbers falling
The decline in the number of farms and land in farms reflects a continuing consolidation in farming operations and diversion of agricultural land to non-agricultural uses.
The changes within the sales classes were a result of operations moving to larger sales classes by consolidation or expansion and rising incomes as a result of strong commodity prices. Because of rising incomes, many farms and ranches near the top of their sales class in 2006 moved into the next higher sales class in 2007 without adding land or otherwise expanding their operations, according to NASS.
NASS - National Agricultural Statistics Service
http://usda.mannlib.cornell.edu/usda/current/FarmLabo/FarmLabo-02-15-2008.txt
Released February 15, 2008, by the National Agricultural Statistics Service
There were 778,000 hired workers on the Nation's farms and ranches
during the week of January 6-12, 2008. Of these hired workers, 599,000
workers were hired directly by farm operators. Agricultural service
employees on farms and ranches made up the remaining 179,000 workers.
Due to Agency budget constraints, the January 2007 Farm Labor Survey was
not conducted. Since the data in all Farm Labor Surveys are tied to a
specific reference week, it was not possible to conduct this survey at a
later time. Therefore, year-to-year comparisons are not available in
this report.
U.S. farms getting bigger, numbers falling
a public service of FBATH
wow dryfly, that was an excellent assessment!
Yesterdays unemployment claims of 407,000, if persistant through the month, suggest Aprils employment report will exceed 200,000. If it happens, this will shock those who predict a mild, short slowdown, and will tank the stock market.
dryfly,
For the long term situation, I'd agree with you. And I also think that against euro, dollar is already too weak (although if you get wage inflation, this difference can quickly evaporate) and still too strong against Asian currencies. But this rebalancing it is a slow process, and it will not help during this current recession. It may, however, significantly help in the recovery. I find the situation similar to Argentina (although more gradual), where the economy rebound from the collapse thanks to exports and weak imports (even though the standard of living fell significantly).
However, all this would work if the global economy is at worst case stagnant in the following years. But deep global recession (Great Depression 2 but inflationary) is not completely ruled out. Everywhere you look, you can see imbalance and correcting the imbalance requires painful restructuring, with increased unemployment as one of the side effects.
There isn't a finite pot of demand out there - that is the fallacy that BOTH the coupled & decoupled camps make. In that respect they are 'coupled' buy in a loose 'hydraulic' sense not in a hard fast 'mechanical' sense.
You mean "fixed" because the demand is definitely finite
You are right that it is not fixed but non-fixed does not imply rising. In long term, technical and scientific progress ensure the improvement but in short to medium term, everything is possible. Also, "need" is not "demand". Chinese would definitely need a lot of infrastructure and a lot of improvement in everything. But they need to have productive means of supporting it. And if their economy is oriented on producing unnecessary goods, it will need to restructure. Coming from a country that had a lot of unproductive and unnecessary industry, I can tell you that it was painful. And after 19 years of reorienting the economy, not all wounds are still completely healed.
Enron Controversy
Gramm was partly caught up in the Enron scandal when it emerged that his wife Wendy had part written an exemption for Enron from federal oversight while she was serving on the Commodity Futures Trading Commission. She then accepted a directorship at Enron. Gramm was personally involved further when it came to light that he had helped to turn the exemption into law as well as push through the deregulation of energy markets that led in part to the Enron scandal. During this period Enron was a major contributor to his campaigns
In 1984, Gramm was elected as a Republican to represent Texas in the U.S. Senate. He defeated Congressman Ron Paul in the primary election and liberal Democratic candidate Lloyd Doggett of Austin in the general election for the right to succeed retiring Republican Senator John G. Tower. Gramm polled 3,116,348 votes (58.5 percent) to Doggett's 2,207,557 (41.5 percent), though Doggett would go on to become a House member later. Gramm served on the Senate Budget Committee from 1989 until leaving office in 2003. Gramm and Senators Fritz Hollings and Warren Rudman devised a means of cutting the budget through indiscriminate, across-the-board spending cuts if deficit-reduction targets were not met. They were successful in making the Gramm-Rudman-Hollings Act law, but portions were ruled unconstitutional and other sections have largely been superseded by other budget-controlling mechanisms. Later in his Senate career, Gramm spearheaded efforts to pass banking reform laws, including the landmark Gramm-Leach-Bliley Act in 1999, which modernized Depression-era laws separating banking, insurance and brokerage activities. Between 1995 and 2000 Gramm, who was the chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, received $1,000,914 in campaign contributions from the Securities & Investment industry
he general co-chairman of John McCains presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to todays economic turmoil.
A regulatory structure set up for banks in the 1930s needed to change because the nature of business had changed, the Illinois senator running for president said in a New York economic speech. But by the time [it] was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.
Gramms role in the swift and dramatic recent restructuring of the nations investment houses and practices didnt stop there.
A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBSs new investment banking arm.
Later, he became a major player in its government affairs operation. According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006.
During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.
For his work, Gramm and two other lobbyists collected $750,000 in fees from UBSs American subsidiary. In the past year, UBS has written down more than $18 billion in exposure to subprime loans and other risky securities and is considering cutting as many as 8,000 jobs.
Gramm did not respond to an e-mail and was unavailable for comment, according to a UBS spokesman. The bank has no official position on the subprime crisis, the spokesman said, but is a member of the Financial Services Roundtable and other industry groups that are actively lobbying Congress on the issue.
Now, some housing experts and economists see Gramms thinking in the recent housing proposal from McCain, the Republican Partys presumed presidential nominee. Gramm is often a surrogate for the Arizona senator, particularly in meetings focused on the economy. And McCain has hinted hed consider the former Texas senator for Treasury secretary in a McCain administration.
McCain delivered an economic speech Tuesday that had Gramm's input, but it was written by domestic policy adviser Douglas Holtz-Eakin.
Sen. Gramm was one of dozens of folks whom Sen. McCain has consulted on the housing issue, including Carly Fiorina and Meg Whitman from eBay," said McCain campaign spokesman Brian Rogers. "They've been friends for years, and he values Sen. Gramm's advice."
You mean "fixed" because the demand is definitely finite
Exactly - my bad.
That is one pathetic little hump from 2001 to now...in the second graph.
how do i get a url number and do i need one to engage in the commentary?
sorry i figured it out..one point, how was merrill able to pay-out $15bln in bonuses for 2007, a year in which its 3rd and 4th quarters compiled over $20bln in writedowns. clearly, merrill was undercapitalized then as now. and the fed is now capitalizing merrill and last year's bonus payments? when will congress convene wall st. ceo's and ask them this?