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U.S. Retail Sales Rise at Slowest Pace in Five Months (Update5)

U.S. Retail Sales Rise at Slowest Pace in Five Months (Update7) - Bloomberg.com

Retail in recession, housing in free fall, autos doing poorly, capex nothing to write home about, and yet "no recession yet?"

Why lead when one can safely follow after the recession has been declared. Leadership is a risky business even for Calculated Risk!

Jas

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Robert: "Recessions are called AFTER two or more consecutive quarters of negative GDP growth."

Wrong. Read NBER's definition, also posted by CR not long ago.

CR has no basis for his conclusion: "no recession yet," especially, after the Employment Report. Did he admit that the YoY growth in employment, at 1.2%, is lower than at the onset of any recession for the past 40-50 years?

Start of recession YoY employment growth on the eve of a recession* (%)
Nov-48 1.9
Jul-53 4.6
Aug-57 2.2
Apr-60 2.7
Dec-69 3.0
Nov-73 3.9
Jan-80 2.2
Jul-81 1.5
Jul-90 1.7
Mar-01 1.3

Average 2.5

Current 1.2

Source: David Rosenberg, ML

Non-res construction and employment are known lagging indicators. Housing downturn is much bigger deal than CR makes it out to be.

Jas

The Federal Reserve has neither the power nor the desire to bail out bad investments. We do have the responsibility to do what we can to maintain normal financial market processes...

Again, the Fed doesn't seem to quite grasp that in order for financial markets to function "normally" assets have to melt-up in order for hedge funds to pay their margin interest.

Otherwise things will breakdown as we saw in August.

It seems to me that the Fed is guaranteeing a continued leveraged melt-up, barring and external shocks (they always come... eventually).

Jas,
Were there occasions when YoY employment growth touched 1.2% without US experiencing a recession?

thanks.

Figure 8 (the U.S. House Prices Index) only reports thru 2007: Q2 (or up to June '07). The percentages reflect "percent change from 4 quarters earlier", so basically a Y/Y change.

What will this chart look like once Q3 numbers get rolled in ? (which is the core period of the recent crunch). Are Q3 numbers available yet ?

When I wrote this earlier - I was too pesmistic:

I don't know if any of you noticed but the subprime crisis is over.

Onlt real defaulst (not just a risk of future defaults) will shake this confiedence. So I suggest closing down this blog until it will be clear to everyone that we are ina crisis.

Now I realize (after FOMC minutes) that not only the sub-prime crisis (it was never about real estate -only sub-prime people) anyhow the crisis is over plus.....

Inflation is also Passe

Good post, Gerard.

I would not be so hard on the Fed for failing to anticipate the contagion from the CDO meltdown.

And yet there were hundreds of bubble blogs out there forcasting just this.

What do bubble blogs know that the Fed doesn't?

Shouldn't the Fed be at least half as aware as they are?

Yes we had a housing bubble. Yes it is now crashing. But the Fed's job is to mitigate the effects, not to pile on.

The misery is due to excessive leveraging of assets, nothing else.

Currently the misery is being piled higher and higher each day, only nobody seems to care because that misery is not felt until some later date.

Nothing was more predictable than what happened to housing. A guy making $30,000 cannot pay off a $500,000 loan.

The same phenomenon is happening in virtually every other market today.

Every time Poole opens his mouth the dollar gets whacked. They should duct tape the idiots mouth closed.

The Fed thinks they're kings... as is we're all supposed to wait around in hushed silence when they tell us things everybody else knew 3 months earlier.

Bernacke may well be the stupidest man alive. There are college kids and dorm rooms and Japanese Housewives that make a killing predicting the same dollar collapse they say isn't predictable.

The fact is, they have no control over rates. The market determines rates. The amt they lend to the system hasn't changed in a decade. They "inject" the same 7-10 billion a day in overnight repo's they've been "injecting" since 1998 and tell us it's new money.

These are people that said 1.7 trillion in bad loans wouldn't hurt the system.

Flea brains.

The Fed has been way behind the curve, remember it was not that long ago that they were denying the very existence of the bubble. Now they have changed their tune, but still seem reactive and lagging in their analysis. I particularly like the way Poole clings to his OFHEO numbers like a 3-year old to his teddy bear,
when monsters like last months home sales report appear in the closet.

Whether or not it is their job to "punish the guilty" is another debate, however, one must see that lately a big part of their job description seems to consist of talking up the markets whenever they appear to get a little woozy.

People have the right to be upset with this devaluation of their savings. If the fed was really incapable of seeing an asset price bubble in the housing market, they are worse than useless- they are untrustworthy custodians of our financial economy.

People are stuffing their 401k(s) with grossly overpriced assets and giving their cash to fund managers.

When all is said and done people are going to be mad as hell. They need to be made aware of the Fed's complicity in all this.

Gerard sounds like somebody tucked comfortably in the upper middle to upper class. Yes, wag that finger at those who understand enough to know they are getting screwed for the benefit of the wealthy and connected and have the nerve to point it out.

How rude for the masses to grumble at their treatment.

One question about this whole 'miraculous' bull market revival: Why aren't more long only fund managers selling into this tape-painting BS? Any ideas? Volume, though, looks pretty anemic throughout the whole melt-up...

I think a lot of the recent rally is simply due to short covering, which is typically accompanied by weak volume.

To address Gerard's comments, I think the error of the Fed's ways is clear for all of us to see: It's too asymmetric in its policy responses. Multiple policymakers have said the Fed can't identify a bubble ahead of time ... and even if it could, it shouldn't do anything to "target" asset prices. Yet as soon as asset prices fall, it is somehow magically able to recognize that there was a bubble after all. And it's willing to go a step further -- essentially diagnose those declining asset prices as "incorrect" ... and turn on the liquidity firehose to combat them.

The end result: Investors learn they can count on the Fed to "save" them. Even worse is the side effect of the Fed's post-bubble liquidity infusions. That excess liquidity doesn't get focused like a laser at the problem it's ostensibly designed to target. In fact, all the liquidity in the world can't put a burst bubble back together. Did the Fed's slashing of the FF rate to 1% stop the Nasdaq from dropping almost 80%? Did it prevent many tech and Internet firms from going out of business? No. But what it did do is create a vast pool of liquidity looking for the next sector to inflate. Lo and behold, housing and commodities started to soar.

Now, the housing bubble has burst and the Fed is reacting by throwing more money at the problem. Is it going to re-inflate the housing bubble? No. We have 2 million more existing homes for sale than is typical. We have speculators who are never coming back because they've been blown out of the water. And we have home prices that are still far out of alignment with underlying incomes. The only thing that will cure those problems is the passage of time, less construction activity, gradually rising wages and other things the Fed can't control really influence with the funds rate.

But that excess liquidity? Those rate cuts? You can be sure the Fed's very large policy response is going to have unintended consequences and inflate yet another bubble somewhere else.

Where? How about Chinese stocks? Anyone see how the leading China ETF is up 74% from its intraday low on August 16 (less than two months ago for those of you keeping score at home), when news of the Fed's impending discount rate cut looks like it leaked? Anyone notice how Baidu.com has gone from $161 to $328? And let's not even talk about the real-world economic problems that result from too much money chasing too few goods and assets. Oil at $80. Gold at $740. Even long-term interest rates have gone UP since the Fed moved, not down.

The lesson is simple: If you continually reinforce the message that you will protect investors from losses on stupid investments, you'll get more stupid investments. Do I think targeted support (such as FHA reforms, more forced loan modifications, etc.) that helps ameliorate the housing and mortgage problems makes sense? Yes. There are plenty of innocent victims out there who need help.

But if "f

Oops, the rest of my post got cut off. Let me continue ...

There are plenty of innocent victims out there who need help.

But if "free market capitalism is truly the best path to prosperity," then we have to let markets occasionally suffer mini-crashes to flush out the crap. We have to let lenders go out of business. We have to let loans get foreclosed on. And we have to stop trying to "paper over" every financial problem. That just results in the bubble baton being passed from sector to sector (first tech, then housing, then ??). It's not a case of being callous or wishing death and destruction on the world. It's a case of wanting economies and markets to behave like they're supposed to -- with recessions, contractions, and yes, sometimes even crashes, as part of the game.

My two cents, anyway.

J. Bridges asked: "One question about this whole 'miraculous' bull market revival: Why aren't more long only fund managers selling into this tape-painting BS? Any ideas? Volume, though, looks pretty anemic throughout the whole melt-up..."

In August there was a large net outflow from stock mutual funds. That was the "climax" low, when fear was so widespread it caused so many investors to pull out so much money at the same time.

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Now investors (including institutional ones) are piling back in.

That's in addition, of course, to all the other bullish reasons that posters here are so tired of hearing me repeat.

S.

In response to a question after his speech, Poole said the dollar's recent decline is difficult to explain...

Right, and there's no homosexuals in Iran.

From ICI circa 2004:

Fact: Mutual Fund Shareholders Do Not "Drive" the Stock Market

Fact: Mutual Fund Shareholders Do Not "Drive" the Stock Market
Mutual funds own 22 percent of publicly held U.S. equity, which has sparked debate over whether fund flows drive stock market price levels. Research by the Federal Reserve suggests that this is not the case. Indeed, a Federal Reserve report found "little evidence that mutual fund investors have been a destabilizing force in the U.S. equity market in recent years." Significantly, Federal Reserve researchers also found no evidence that equity fund flows cause market price change, either temporarily or permanently.

[snip]

Q: Stock market is at all time high. Is this a new paradigm?

A: It is the same old paradigm, as the older one in 2001, with 6.5-year time shift. Jas

I see. You are a bear then. How long have you been bearish? since 98, 04 or 07?

S.

Tennis_8 said: "There have ALWAYS been negatives in the US economy - reasons for concern about future growth."

To which I can only add "that the economy and the stock market simply shrug-off most of the time."

That's why I'm so bullish. Not because I deny the negatives, but because the positives almost always have a greater net impact. The key, IMO, is to objectively, quantifiably identify the real threats to the economy and the stock market and don't get faked-out by the false ones.

S.