Stock World Weekly
by ilene - January 2nd, 2011 8:18 am
Here’s the latest Stock World Weekly Newsletter, New Year’s Edition.
Feedback welcome — please leave comments, we value your input. - Ilene
Picture credit: William Banzai7
For Stock World Weekly archives, click here.
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DiggBernanke Is Making the Crisis Worse
by ilene - November 23rd, 2010 7:10 pm
Bud Conrad of Casey Research delivers some more harsh criticism to Ben Bernanke regarding QE2, foreign relations and currency devaluation. – Ilene
Courtesy of Casey Research
The Fed is a corrupt and powerful institution, and Chairman Bernanke is making the global crisis worse. His new speech given last week in Europe was terribly misguided and will upset markets as the Chinese and Germans won’t ignore his challenges. Bernanke’s interpretations of the markets have been wrong since before he was appointed to head the Fed, and his actions are doing nothing but aggravating the situation.
In this seminal speech, titled “Rebalancing the Global Recovery,” Bernanke not only defended QE II as the right policy, but also attacked the monetary policy of China, the biggest holder of U.S. debt, an action that must be understood for how misdirected it is.
Here are a few excerpts from the speech:
On our "tepid" recovery
- In sum, on its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years.
Indeed, although I expect that growth will pick up and unemployment will decline somewhat next year, we cannot rule out the possibility that unemployment might rise further in the near term, creating added risks for the recovery.
On China
- The strategy of currency undervaluation has demonstrated important drawbacks, both for the world system and for the countries using that strategy.
… For large, systemically important countries with persistent current account surpluses, the pursuit of export-led growth [i.e., China and its strategy] cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.
On defending QEII as the right policy
- Following up on this earlier success, the Committee [i.e., the Federal Open Market Committee] announced this month that it would purchase additional Treasury securities. In taking that action, the Committee seeks to support the economic recovery, promote a faster pace of job creation, and reduce the risk of a further decline in inflation that would prove damaging to the recovery.
Fully aware of the important role that the dollar plays in the international monetary and financial system, the Committee believes that the best way to continue to deliver
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Telling Signs-of-the-Times: Layaways, Off-Brands, Goodwill Stores, Consignment Sales, Frugality, all Thrive in Middle-Class Suburbia
by ilene - November 9th, 2010 6:51 pm
Telling Signs-of-the-Times: Layaways, Off-Brands, Goodwill Stores, Consignment Sales, Frugality, all Thrive in Middle-Class Suburbia
Courtesy of Mish
Telling Signs-of-the-Times: In grocery stores, "No-Name" sales are up 2% and now represent 22% of total sales. Some full priced stores now offer consignment sections, an unheard of practice a couple years back.
Layaway sales are back in vogue at Toys-R-Us and jewelers alike. Layaways are a depression era phenomenon that all but died with the mass marketing of credit cards.
Old Stigmas Become New Badge of Honor
Frugality is the new "badge of honor" says the Yahoo!Finance report In a tough economy, old stigmas fall away
The Goodwill store in this middle-class New York suburb is buzzing on a recent weekend afternoon. A steady flow of shoppers comb through racks filled with second-hand clothes, shoes, blankets and dishes.
A few years ago, opening a Goodwill store here wouldn’t have made sense. Paramus is one of the biggest ZIP codes in the country for retail sales. Shoppers have their pick of hundreds of respected names like Macy’s and Lord &Taylor along this busy highway strip.
But in the wake of the Great Recession, the stigma attached to certain consumer behavior has fallen away. What some people once thought of as lowbrow, they now accept — even consider a frugal badge of honor.
At the supermarket, shoppers are buying more store-labeled products, like no-name detergents and cereal, and not returning to national brands.
And in a telling trend, Americans are turning to layaway more often when they buy expensive items such as engagement rings and iPads. The wealthy are also using layaway more often, a drastic change from the past.
"The old stigmas are the new realities," says Emanuel Weintraub, a New York-based retail consultant. "Now, people don’t have a problem saying, ‘I can’t afford it.’ It’s a sign of strength."
Two years ago, having second-hand clothes in the same store that sells regular-priced goods might have driven well-heeled shoppers away. Today, the concept works. The new consignment area, called My Secret Closet, has brought in new customers. Shoppers browse both the retail and consignment areas without hesitation.
"We are seeing a permanent change in how people shop, and we have to respond to that," says Tom Patrolia, who has owned the store for 24 years.
The growth in layaway also reflects Americans’ new willingness to set aside
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Double Dip Delayed, Not Derailed; Understanding Consumer Spending
by ilene - October 29th, 2010 3:08 pm
Double Dip Delayed, Not Derailed; Understanding Consumer Spending
Courtesy of Mish
The BEA Advance GDP for Third Quarter 2010 came in at +2.0%. However, Table 2. Contributions to Percent Change in Real Gross Domestic Product shows that Change in private inventories contributed +1.44 while real final sales contributed a mere .6.
How sustainable is that?
The answer is not very. This is likely the last hurrah for inventory replenishment even without factoring in upcoming cutbacks at the state level.
Not a V-Shaped Recovery
In terms of real final sales, this "recovery", is the weakest on record. Dave Rosenberg has some thoughts on that in Lunch with Dave.
U.S. REAL FINAL SALES 60 BASIS POINTS SHY OF DOUBLE-DIPPING
The major problem in the third quarter report was the split between inventories and real final sales. Nonfarm business inventories soared to a $115.5 billion at an annual rate from the already strong $68.8 billion build in the second quarter — this alone contributed 70% to the headline growth rate last quarter. If we do get a slowdown in inventory investment in Q4, as we anticipate, it would really not take much to get GDP into negative terrain. We estimate that if the change in inventories slowed to about $94.0 billion in Q4 (about $22 billion below Q3 levels), GDP would contract fractionally. In other words, it won’t take much for GDP to slip into negative terrain.
The recession may have technically ended, but outside of inventories, and the best days of the re-stocking process look to be behind us, this has been a listless recovery. At 60 basis points above zero, real final sales are just a shock away from double-dipping — a shock like looming tax hikes, accelerating fiscal cutbacks at the state/local government level or the millions of “99ers” about to fall off the extended jobless benefit rolls at the end of November.
In terms of components, the good news was that consumer spending did accelerate to a 2.6% annual rate from 2.2% in the second quarter — the best performance since Q4 2006. Non-residential construction eked out a 3.8% annualized gain, the first advance since Q2 2008. But the good news pretty well stopped there.
It is also no surprise to see imports bulge when inventories did the same, but what caught our eye in the external trade portion of the GDP report was
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Inflation Expectation Noise
by ilene - October 7th, 2010 5:01 am
Inflation Expectation Noise
Courtesy of Mish
Scott Grannis on Seeking Alpha has written a pair of interesting articles regarding inflation expectations and Quantitative Easing. Grannis thinks that Quantitative Easing is working. I don’t, but that debate depends on the definition of "work".
In regards to inflation expectations as measured from TIPS, Grannis says Bond Market Bracing for Return of Inflation
Lots of important action in the bond market these days. 10-yr Treasury yields have plunged to a mere 2.36%. Recall that they hit a generational low of 2.05% at the end of 2008, when the entire world was terrified of impending economic death and destruction. Are yields today telling us that doom is just around the corner? Absolutely not. This time around things are very, very different.
The interesting part of the bond market action is in the TIPS market, where yields have plunged by much more than Treasury yields, and in the long end of the Treasury curve, where the spread between 10 and 30-yr Treasuries has widened to its steepest level ever. Since the end of August, when QE2 expectations started to heat up, 10-yr Treasury yields have declined by 10 bps, whereas 10-yr TIPS real yields have dropped by 50 bps. That’s a 40 bps increase in annual inflation expectations over the next 10 years. Using the more sensitive measure of inflation expectations—the 5-yr, 5-yr forward breakeven rate—inflation expectations have jumped almost 50 bps since the end of August. The spread between 10- and 30-yr Treasuries has shot up to a record-breaking high of 127 bps, up from 105 bps at the end of August.
Note in the chart above how the drop in Treasury yields in late 2008 reflected deflationary fears (with inflation expected to average zero over the subsequent 10 years), whereas the current drop reflects inflationary fears.
So the market is saying that it has little doubt that the Fed will ramp up its quantitative easing efforts, and almost no doubt that this will prove inflationary in the years to come. The plunging dollar and the soaring price of gold fully support this interpretation.
This is the best evidence you can find that deflation risk has evaporated. The question now is not how low inflation will be, it’s how high it will be in the years to come.
If the prospects for the economy are improving and inflation expectations are
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Real Time Probabilities of Recession Above 20% Second Consecutive Month
by ilene - October 6th, 2010 3:29 pm
Real Time Probabilities of Recession Above 20% Second Consecutive Month
Courtesy of Mish
Seeking to eliminate the enormous lag of NBER in declaring the beginning and end of recessions, economist Marcelle Chauvet computes real-time recession probabilities in a manner consistent with the long after the fact findings of the NBER.
The probability is down from last month, nonetheless Real Time Probabilities of Recession are above 20% for the second consecutive month.
Real-time means a one quarter delay, but that is still faster than the NBER is likely to make proclamations.
click on chart for sharper image
| Month/Year | Probability of Recession% |
| January 2009 | 100.0% |
| February 2009 | 99.7% |
| March 2009 | 98.9% |
| April 2009 | 94.3% |
| May 2009 | 92.6% |
| June 2009 | 69.4% |
| July 2009 | 41.0% |
| August 2009 | 39.3% |
| September 2009 | 27.1% |
| October 2009 | 18.9% |
| November 2009 | 7.9% |
| December 2009 | 6.5% |
| January 2010 | 4.1% |
| February 2010 | 2.4% |
| March 2010 | 2.1% |
| April 2010 | 1.1% |
| May 2010 | 2.8% |
| June 2010 | 27.0% |
| July 2010 | 20.6% |
Note the drop from 69.4% to 41.0% in June/July 2009 accurately timing the end of the recession well in advance of the NBER. Also note the huge leap from 2.8% in April to over 20% in June and July.
For a description of the methodology, please see the Center for Research on Economic and Financial Cycles post CREFC Real Time Probabilities of Recession.
Also see Real Time Analysis of the U.S. Business Cycle
Open Dissent at the Fed: Charles Plosser (Philly Fed) Opposes QE2; Thomas Hoenig (Kansas City) attends Tea Party
by ilene - September 29th, 2010 4:04 pm
Open Dissent at the Fed: Charles Plosser (Philly Fed) Opposes QE2; Thomas Hoenig (Kansas City) attends Tea Party
Courtesy of Mish
An open battle exists at the Fed concerning Bernanke’s second round of Quantitative Easing (QE2).
Hoenig Attends Tea Party
Bloomberg reports Fed Dissenter Hoenig Wages Lonely Campaign Against Easy Credit
Thomas M. Hoenig, dressed in a gray suit, white shirt with French cuffs, and baby-blue tie, faces an edgy crowd of 150 people in a hotel meeting room in suburban Lenexa, Kan. A large “Kansas City Tea Party” banner covers a table at the door. Attendees wear anti-tax stickers on their lapels. This is not an after-dinner speech for which most central bankers would volunteer.
Hoenig smiles at his audience and begins: “This is a support-the-Fed rally, right?”
Dead silence. Then the room erupts in laughter. Disarmed, the Tea Partiers listen politely as Hoenig defends the Federal Reserve as an indispensible institution, even if at the moment, he says, it happens to be heading in the wrong direction.
And, by the way, if it were up to him (though it’s not, really) he would break up the biggest Wall Street banks.
This is Tom Hoenig’s moment, and it’s a strange one. In Washington, he is the burr in Fed Chairman Bernanke’s saddle: the rogue heartland banker who keeps dissenting alone — for the sixth straight time on Sept. 21 — to protest the Fed’s rock- bottom interest-rate policy. Hoenig warns that the Bernanke majority is setting the country up for an as-yet-unknown asset bubble: the next dot-com or subprime craze. He can’t tell yet where the boom-and-bust will materialize, but he can feel it coming, like a Missouri wheat farmer senses in his bones the storm that’s just over the horizon.
In abundant speeches and articles, Hoenig has condemned the political influence of the financial elite. “We’ve had a Treasury Secretary from Goldman Sachs under a Democratic President and a Treasury Secretary from Goldman Sachs under a Republican President. The outcomes were not good,” Hoenig says while being driven to a luncheon talk at an affordable housing conference in Topeka, Kan.
Hoenig harbors powerful misgivings over not dissenting more often and more forcefully during the Greenspan years. “He regrets going along with the votes when Alan Greenspan was chairman to get rates so low and keeping them so low so long,” says his
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Good News: The Great Recession is Over; Bad News: It Doesn’t Feel Like It
by ilene - September 20th, 2010 3:30 pm
Good News: The Great Recession is Over; Bad News: It Doesn’t Feel Like It
Courtesy of Mish
According to the NBER, at long last the great recession is officially over. Bloomberg reports Worst U.S. Recession Since 1930s Ended in June 2009.
The longest and deepest U.S. recession since the Great Depression ended in June 2009, lasting 18 months, the National Bureau of Economic Research said.
“The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007,” the Cambridge, Massachusetts-based bureau’s business cycle dating group said today in a statement. “The basis for this decision was the length and strength of the recovery to date.” The committee is the accepted arbiter of when recessions start and end.
“The economy has begun to move forward, albeit at a slow, disappointing pace,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. “It’s a recovery that feels fragile, and still raises questions about the risks to its sustainability.” The odds of the economy falling back into another recession are about 25 percent, Kasman said.
Over 50 and Never Working Again
The New York Times comments on the Fears of Never Working Again
Of the 14.9 million unemployed, more than 2.2 million are 55 or older. Nearly half of them have been unemployed six months or longer, according to the Labor Department. The unemployment rate in the group — 7.3 percent — is at a record, more than double what it was at the beginning of the latest recession.
According to a Gallup poll in April, more than a third of people not yet retired plan to work beyond age 65, compared with just 12 percent in 1995.
Older workers who lose their jobs could pose a policy problem if they lose their ability to be self-sufficient. “That’s what we should be worrying about,” said Carl E. Van Horn, professor of public policy and director of the John J. Heldrich Center for Workforce Development at Rutgers University, “what it means to this class of the new unemployables, people who have been cast adrift at a very vulnerable part of their career and their life.”
Older people who lose their jobs take longer to find work. In August, the average time unemployed for those 55 and older was slightly more than 39
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One Sided Policies
by ilene - September 19th, 2010 1:36 pm
One Sided Policies
Courtesy of Mish
Here is an email from Robert who is wondering about the Fed’s ability to inflate, and the consequences if they try. Robert writes …
Hello Mish,
Something is bothering me.
I thought there would be inflation after the US government and FED’s actions, but there has been no inflation. I was wrong and you were right. I understand why and I also agree with the concepts of "peak credit" and "peak consumption," as far as the West goes at least.
But this seems to mean that the government can sell vast quantities (1 -2 trillion per year) of debt directly to the FED and to other parties with few observable short or intermediate term consequences.
If everyone agrees that the economies of the West will be weak for many years (for a host of reasons) and everyone also agrees that the dollar will be the reserve currency for years to come then:
1) What is the problem with running 1.5 trillion dollar deficits per year as far out as the eye can see? ( I am not being facetious.)
2) What is the problem with using federal-government borrowed money to bail out state and local governments to keep them from near implosion and the likely associated social problems?
If I am missing something, what is it?
Robert
Fed’s Primary Mission Failed
Hello Robert
First off, congratulations for understanding the Fed’s attempt at producing inflation has failed. Many do not see it that way, but it depends on the definition of inflation, and an understanding of what the Fed is really attempting to do.
The Fed’s primary goal is not to get prices to rise (regardless of what they say), but rather to get banks lending, consumers spending, and businesses hiring. The Fed and Congress have failed on all three scores.
One Sided Policies
The Fed did not produce inflation, but there is a huge price to pay to pay for the Fed’s One sided policies.
- The rich get richer and the poor get poorer.
- When the rich make a mistake they get bailed out.
- When the poor make a mistake they get tossed to the dogs.
One needs to look at things not just from the recent "stabilization" of banks, but as an ongoing affair that has killed the middle class. Inflation was running rampant (in terms of credit…
Currency Intervention Madness; Japan Intervenes to Weaken the Yen; Selected Quotes
by ilene - September 15th, 2010 4:45 pm
Currency Intervention Madness; Japan Intervenes to Weaken the Yen; Selected Quotes
Courtesy of Mish
After months of attempting to talk the Yen down, Japan Intervenes First Time Since ’04 to Rein in Yen.
Japan intervened in the foreign-exchange market for the first time since 2004 after a surge in the yen to the strongest against the dollar in 15 years threatened to stunt the nation’s economic recovery.
Finance Minister Yoshihiko Noda confirmed the intervention, speaking to reporters today in Tokyo. He said Japan contacted other nations about the step, without specifying that today’s measure was taken unilaterally. Chief Cabinet SecretaryYoshito Sengoku said the ministry considers 82 per dollar to be the line of defense, after it reached a high of 82.88 earlier today.
Japan hadn’t intervened to sell yen in the foreign-exchange market since 2004, when the yen was around 109 per dollar. The Bank of Japan, acting on behest of the Ministry of Finance, sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Noda didn’t say how much was used in today’s action, while that figure will be released at a later date.
U.S. Treasury Secretary Timothy F. Geithner declined to comment about the prospects for currency intervention in an interview last week, instead saying that Japanese officials should do what they can to help their economy grow.
Recent Japanese data have pointed to the expansion losing momentum. The government yesterday revised its July industrial output figures to show that output fell rather than increased from a month earlier. Japan’s economy expanded at a 1.5 percent annual rate in the second quarter, less than half the pace of the previous period, and consumer confidence slid to a four-month low in August.
Is Currency Manipulation OK or Not?
Both China and Japan are intervening in the Forex markets for the same reason, to strengthen exports and stimulate the economy.
Pardon me for asking the obvious question but it needs to be asked: Why does Geithner give the green light for Japan to intervene in the currency markets but China is threatened with a currency manipulator label for doing the same thing?
Boosting the Dollar
Please consider a few select quotes from the New York Times article Japan Moves to Boost the Dollar
JOHN VAIL, CHIEF GLOBAL STRATEGIST, NIKKO ASSET MANAGEMENT
"Clearly the U.S. is
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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