Archive for the Economic Statistics Category

Roubini, the Pessimist in Triumph at Davos

Posted in Economic Statistics, Mortgage/Housing Crisis, Recession/Depression on January 31, 2009 by John Stodder

Nouriel Roubini is no longer a prophet without honor.  He was lauded at the World Economic Forum in Davos, Switzerland, with plaudits coming from, among others, Jacob Frenkel, vice chairman of American International Group, who publicly disputed the doomsaying economist two years ago.  Now Frenkel, whose company was a notable bailout recipient, has dropped to his knees:

“Roubini was intellectually courageous, and he called the shots correctly…. He gained credibility, and he deserves it.”

Is Frenkel saying that others, including himself, knew at some level that Roubini was correct, but were afraid to say so?

Roubini claims he wants to forecast a recovery, but in all honesty, he can’t.

Roubini remains more pessimistic than economists elsewhere. The IMF forecasts global growth of 0.5 percent this year and bank losses from toxic U.S.- originated assets of $2.2 trillion. By contrast, Roubini sees the global economy shrinking this year, and banks writing down at least $3.6 trillion — compared to the $1.1 trillion disclosed so far.

While the U.S. government is resisting nationalizing its biggest banks, Roubini says it will have no choice because they are now “effectively insolvent.” And the outcome may be even worse than even he anticipates if governments fail to take aggressive steps to recapitalize banks and revive their economies, he says: “The risk of a near-depression shouldn’t be underestimated.”

Roubini, who’s now working on a book about the crisis, says he takes no particular pleasure in his role as Dr. Doom or the attention it brings him.

“I’m not a permanent bear,” he says. “I’ll be the first to call a recovery, but I just don’t see it yet, and it’s getting uglier.”

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Peter Orszag Was A Blogger

Posted in Barack Obama, Economic Statistics, Environment, Health Care with tags , , , , on November 25, 2008 by John Stodder
Peter Orszag (first the s then the z)

Peter Orszag (first the 's' then the 'z')

The newly-announced director of the Office of Management and Budget, Peter Orszag, blogged while he was director of the Congressional Budget Office, I found out today.   So, quick, before it’s scrubbed, go read it.

Here is a link from the blog to Orszag’s slide presentation on climate change.  He’s not a skeptic, but he doesn’t sugarcoat the costs of addressing it, and thus buttresses the skeptics’ case.  If you’ve got about a half-hour, it’s worth your time to follow how he attacks the problem.  He recognizes the cost burden will inevitably fall upon those least able to afford it, so his attempt is to see what formula would spread the burden more fairly.  The conclusion I take away is, we need to be very sure that increasing CO2 emissions are a serious problem for future generations before imposing these kinds of costs on people alive today.

Here is a link to the slides from a talk he gave at Harvard called “New Ideas on Human Behavior in Economics and Medicine.” He’s very taken with the placebo effect.  Wonder if he thinks the placebo effect would be useful in alleviating global warming.

And here is an interesting observation about the tendency of people to overinvest their 401 (k) savings in company stock:

Many participants in retirement plans appear to be taking on unnecessary risk by investing in individual stocks rather than a diversified portfolio. The result is that those workers assume excessive risk for which they do not receive a higher expected return. (Those workers may feel they have inside information or insights that will allow them to outperform the market with particular investment choices, but the evidence suggests that unless you’re Warren Buffett, trying to outguess the market usually doesn’t work.)  Investing excessively in one stock that also happens to be your employer’s stock is even riskier — if the company runs into trouble, both your retirement assets and your job may be in danger.

In Orszag’s world, we are ridden with misperceptions. Some hurt us, and some work in our favor.  The role of government is to clarify matters for some, but use psychology  He’s going to be an important intellectual force in the Obama Administration.

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Things We Didn’t Expect to See After the Bailout Failed, Part 2

Posted in Economic Statistics, Wall Street on September 30, 2008 by John Stodder

Stocks moving up so strongly?

The major indices spent the entire day in rally mode Tuesday, adding to their early gains as the day progressed. The Dow Jones Industrial Average jumped 485.21 points, or 4.7%, at 10,850.66, and the S&P 500 added 58.34 points, or 5.3%, to 1164.73. The Nasdaq climbed 98.6 points, or 5%, to 2082.33.

On Monday, stocks got crushed after the House of Representatives voted down the Treasury Department’s $700 billion financial-sector stabilization plan. The Dow plunged 777 points, or 7%, its worst single-day loss ever in terms of points and its worst percentage loss since Sept. 17, 2001. The S&P 500 gave up 8.8%, and the Nasdaq fell 9.1%.

Of course, there are less than encouraging explanations.From the same story:

Phil Roth, chief technical analyst at Miller Tabak, had expected an upside open following Monday’s big drop. He pointed out that the financial sector, which has been at the center of market turmoil, held lows established on Sept. 18. Those lows were higher than the ones reached in mid-July, which is encouraging, said Roth. Nevertheless, “I think we’ve got a long way to go before we can say we have a bottom for a whole bull market,” he said.

“Once we get the stupid bill passed … the market will have a little hoopla. And [then], people will say, ‘Oh my God, we’re in a recession.’ That’s the next shoe to drop, but that will take a while.” Roth said that a lack of investment buying is the biggest problem the market faces, and long-term interest rates need to decline before stocks enter a bull market.

I’ll get more reactions up later.

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Things We Didn’t Expect to See After the Bailout Failed, Part 1

Posted in Economic Statistics, Wall Street with tags , , on September 30, 2008 by John Stodder

I woke up this morning and turned on the radio immediately to hear what kind of financial disaster I should expect after yesterday’s political debacle. I’m in California, so the apocalypse would be pretty far along by the time my alarm went off.

Instead, I found results like this:

The euro fell the most against the dollar since the introduction of the shared currency in 1999 after France and Belgium led a state-backed rescue of Dexia SA, as the widening financial crisis forces governments to prop up financial institutions across Europe.

The 15-nation currency also weakened against the British pound after Belgian Prime Minister Yves Leterme said Dexia, the world’s biggest lender to local governments, will receive about $9.2 billion to shore up its capital. The dollar rose against the yen on speculation the U.S. Senate will salvage a $700 billion bank-bailout plan as early as tomorrow after Congress rejected it yesterday.

“The consensus is the U.S. banking system is a little bit further along in its exposure of its toxic assets,” said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. “It’s a case of which is relatively worse. The dollar’s going to benefit against the euro because Europe has more to expose.”

So, you’re saying the dollar is stronger today?

Well, maybe not.  It might just be scarcer.

Banks are being squeezed amid a surge in borrowing costs as lenders hoard cash on concern more financial institutions will fail. The euro interbank offered rate, or Euribor, that banks charge each other for one-month loans climbed to a record 5.05 percent today, the European Banking Federation said.

The London interbank offered rate, or Libor, that banks charge each other for such loans in dollars climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers’ Association said.

“There’s a dollar shortage globally,” said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “Demand for liquidity trumps the fundamentals. Fundamentally, the U.S. is awful, and Europe is awful. Fundamentals are irrelevant today.”

Foreign banks are paying the highest premiums in at least a decade to borrow in dollars in the swaps market even after the Federal Reserve more than doubled the amount of funds available to other central banks yesterday by expanding swap lines.

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Stock-Market Wealth Through Gridlock

Posted in Barack Obama, Democratic Party, Economic Statistics, John McCain, Republican Party, Wall Street with tags , on September 12, 2008 by John Stodder

If John McCain holds onto his slight lead until Election Day, and if Democratic majorities return to Congress, history suggests the stock market will be pleased, says Donald L. Lusken, chief investment officer at Trend Macrolytics LLC, in a Wall Street Journal op-ed today.

However, prospects for the market would be even rosier if  Republicans staged a congressional upset, Lusken wrote.  And even better if Obama was the president during this unlikely GOP resurgence:

It’s Congress that makes the laws. The president just signs them. Based on congressional control, the study results look very different. Under Republican Congresses, stocks have averaged a 19% return, while under Democratic Congresses only 11.9%. Real GDP growth, lagged two years, has averaged 3.7% under Republican Congresses, and only 3.2% under Democratic ones.

Then there are the various party mixes between the president and Congress. If John McCain wins and we have a Republican president and a Democratic Congress, history leads us to expect an average 10.3% total return from stocks and 3.3% real GDP growth. If Barack Obama wins, and we have a Democratic Congress too, then according to history stocks will average 13.8%, and real GDP growth 3.3%.

But that’s no argument for voting for Mr. Obama. Vote for Mr. McCain — but vote for Republican senators and representatives too. When Republicans have controlled the whole government, it blows away anything Democrats can do. Stocks have averaged 17.5% and real GDP growth 3.3%.

By the way, as fond as Democrats are of saying how poorly stocks have performed under George W. Bush, here’s a sobering fact: Stocks averaged 14.1% return in those Bush years when Republicans controlled Congress — and when Democrats got in there and mucked things up, the average has been a loss of 8.9%. That’s not even including 2008 year-to-date, which doesn’t look so pretty.

If the electorate were really smart, it would elect a Democratic president and a Republican Congress. Under that deal, stocks have averaged a 20.2% total return, and real GDP averaged 4%.

That last scenario reigned during the last six of Bill Clinton’s eight years, the era of “irrational exuberance” that many investors would gladly endure again.

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Doubts About That 3.3 Percent GDP Growth Figure

Posted in Economic Statistics with tags , , , , , on September 11, 2008 by John Stodder

Associated Press dropped a provocative and politically potent story about the economy Wednesday.  They say “a vocal group of analysts” doesn’t think the surprisingly good second-quarter GDP revision reported last week will prove out.

As you read the article, you’ll note, however, that the analysts’ critique isn’t limited to Q2.  They don’t buy the way the Commerce Department calculates the number.

GDP is a crucial variable in setting monetary policy, such as short-term interest rates, but critics say the effort to gather and calculate the data is underfunded, hobbled by government agency infighting and overly reliant on assumptions.

Criticisms of second-quarter GDP were more granular. Disbelievers say it was skewed by some of the conventions that make it consistent from one quarter to the next and strip out foreign inflation.

A couple of for-instances illustrating the general unreliability of the GDP number:

“I’ve never been convinced they’re very good at measuring inventories,” said David Wyss, chief economist at Standard & Poor’s. “My father was treasurer of a small company and I asked him how he filled out the inventory forms. He said, ‘I don’t know. I just toss them over to my secretary.’ Gives you great faith in the data.”

Now add funding issues to the brew.

Half the government’s spending on economic data is dedicated to agriculture, a quarter to manufacturing, and only a quarter to the service sector, even though services make up 80 percent of the U.S. economy, Wyss said.

But there are also problems unique to the latest report, we are told:

To make GDP reflect ongoing business, one-time write-downs are excluded. That makes good sense, except when an industry that comprises a huge sector of the economy is wracked by losses from billion-dollar write-downs, as the financial sector has been.

In the second quarter, Wachovia Corp. lost $9.11 billion, Citigroup Inc. lost $2.5 billion and the nation’s thrift banks, which loan most of their money to consumers, lost $5.4 billion. After stripping out those and other write-downs, however, the GDP calculation for the second quarter computed financial companies’ profits grew 24.7 percent.

As David Rosenberg, Merrill Lynch’s North American economist, put it, “Are you kidding me?”

The GDP number carries great political weight during an election year.  The original Q2 growth number of 1.9 percent was widely described as “anemic,” and while it didn’t depict a recession, it supported allegations of economic stagnation.  The revised number, supposedly more accurate, undermined the Democrats’ gloom-and-doom depictions of the economy.

The rising unemployment report that came out a few days later put the economy back on the campaign trail, but the good GDP number gave the GOP candidates a workable retort.

Nowhere do the analysts suggest politics influenced the numbers. They just think the numbers are a little dim.

“Whenever people are talking about the economy, they’re trying to square the anecdotal evidence with the numbers,” (Euro Pacific Capital President Peter) Schiff said. “It’s not that the people are wrong, it’s the numbers. It’s not that there’s a disconnect between the people and the numbers, there’s a disconnect between the numbers and reality.”

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Unemployment: The Big Kahuna Speaks

Posted in Barack Obama, Bush Administration, Economic Statistics, John McCain, Tax Policy with tags on September 5, 2008 by John Stodder
Unemployment hits a 5-year High

Unemployment hits a 5-year High

Of all economic metrics, by far the greatest political weight is assigned to the unemployment number, which today reached a 5-year high of 6.1 percent.

The party out of the White House always, always blames bad job numbers on the party in power. So, whatever convention bump John McCain and Sarah Palin get from this week’s whoop-de-doo will be freighted with renewed concerns about a shrinking economy for ordinary workers.

In addition, the economy suffered a net loss of 84,000 jobs in August, according to the U.S. Department of Labor, compared to a revised reading of a 60,000 job loss in July.

The U.S. economy has lost 605,000 jobs so far this year.

The jobs report immediately drew comment from the presidential candidates as well as the Bush administration.

The White House pointed to other economic readings, including last week’s gross domestic product report. It showed second quarter growth jumping to a 3.3% annual rate, helped by economic stimulus checks and strong exports.

“While these (jobs) numbers are disappointing, what is most important is the overall direction the economy is headed,” said the White House statement.

But the campaign of Democratic presidential candidate Barack Obama said the report points out the failure of Republican policies.

“John McCain showed last night that he is intent on continuing the economic policies that just this year have caused the American economy to lose 605,000 jobs,” Obama said in a statement. “John McCain’s answer is more of the same: $200 billion in tax cuts to big corporations and oil companies, and not one dime of tax relief to more than 100 million middle-class families.”

The McCain campaign argued that Obama’s economic policies would cause more job losses in the future.

“Sadly there are those who believe that to grow this economy we must raise taxes, impose costly new mandates and isolate America from the global economy,” McCain said in a statement. “When our economy is hurting, the last thing we should do is raise taxes as Barack Obama plans to do and has done.”

This round goes to Obama. Not because people think, contra McCain, that we should raise taxes in the face of a slowdown.  It’s more primal than that. It’s “throw the bums out,” which is an archaic term for “change.”

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