Okay, I have used the phrase several times myself, but I am sick and tired of everyone referring to economic strategy around the world as kicking the can down the road. I have read it a hundred times this month. It is driving me crazy. Not because it is being repeated so much, but because it is true.
We all know where this will end up. If you do not, let me link here a nice discussion of it by John Mauldin - or you can buy his book on it.
http://seekingalpha.com/article/287238-europe-unraveling-u-s-on-the-edge-of-yet-another-recession
He seems to know what he is talking about. Let me point out what I think is one of the more meaningful aspects of his article; another, perhaps worse, recession is coming and virtually inevitable, but no one can say exactly when. As he points out, Japan dealt with a similar - though internal - situation and was able to kick the can for a couple of decades so far. But the current problem for the U.S. is international and interconnected and none of the other affected countries have the savings rate of the Japanese, so I would not expect decades to elapse before we catch up to this can. Indeed, it could well happen this year and I will be surprised if we do not get there by the end of 2012. Nonetheless, there is no way to time this too well. Just know it is coming, for largely the reasons I have noted here and summarized in John Mauldin's linked article.
Blame it on China - Not
There has been a good bit of China bashing over the past few years and many are pointing to China as a source of some of our economic woes. After all, they stole all our jobs - right? Well I read a study yesterday in the L.A. Times noting that a whopping 2.7% of our personal comsuption spending in the U.S. is on Chinese made goods. Virtually all we spend, as in over 88%, is domestic in origin. So get over it.
http://www.reuters.com/article/2011/08/16/us-markets-global-idUSTRE7725BC20110816?feedType=RSS&feedName=topNews&rpc=71
Moreoever, as noted in John Mauldin's article linked above, China has been allowing its currency to increase in value, which helps us, the EU and other struggling economies, while at the same time achieving the goal there of cooling its economy a tad. Short story, China is a part of the puzzle but not as big as some might think in terms of what has caused our problems.
Disclosures: None
Monday, August 15, 2011
This Guy Could Be Your Next President?!
I admit that I am no friend of the Fed or helicopter Ben. I would not eliminate the prospect of some political agenda either, but have seen no evidence of same to date. And I am not in favor of what the Fed did leading up to the recession in 2008 or what it has done in response (though the former was worse than the latter and the former is mostly on Greenspan). Still, for Texas Governor Rick Perry, the latest to throw a hat into the presidential ring, to say it would be treasonous for Ben to do anything to stimulate the economy between now and the election - over a year from now - is in itself treasonous. Seriously, I do not like Ben or his policies but he should be free to do what he sees best to do to fit his mandate. Trying to exert political pressure on him to do otherwise is the pot calling the kettle black.
http://www.businessweek.com/news/2011-08-16/perry-says-fed-spending-before-election-would-be-treasonous-.html
Keep in mind that Ben was Chairman of Bush's Council of Economic Advisors and then became head of the Fed while W was in charge. I really do not think he has a political agenda (at least not one supporting Obama), but cannot speak for others in the Fed. I do think he is doing what he thinks he needs to do to stabilize, if not stimulate, the economy. While I disagree with the approach, I would not consider him continuing the approach he has done for nearly three years to be a politically motivated endeavor. Perry apparently feels otherwise.
Perry, I noted, unlike Ron Paul, is not promoting the idea of doing away with the Fed. Still, it is apparent he does not like them. I do not like certain members or what they have been doing, but I think they serve an important purpose if done right, so I think they are a necessary evil.
The point here is it is a bit disappointing for him to be playing the Fed as a political card and trying to stop them from doing what they think is right. It almost seems he is afraid the Fed will do something to actually improve the economy and hurt his chances of election. If that is his reason, how screwed up is that?
Disclosures: None.
http://www.businessweek.com/news/2011-08-16/perry-says-fed-spending-before-election-would-be-treasonous-.html
Keep in mind that Ben was Chairman of Bush's Council of Economic Advisors and then became head of the Fed while W was in charge. I really do not think he has a political agenda (at least not one supporting Obama), but cannot speak for others in the Fed. I do think he is doing what he thinks he needs to do to stabilize, if not stimulate, the economy. While I disagree with the approach, I would not consider him continuing the approach he has done for nearly three years to be a politically motivated endeavor. Perry apparently feels otherwise.
Perry, I noted, unlike Ron Paul, is not promoting the idea of doing away with the Fed. Still, it is apparent he does not like them. I do not like certain members or what they have been doing, but I think they serve an important purpose if done right, so I think they are a necessary evil.
The point here is it is a bit disappointing for him to be playing the Fed as a political card and trying to stop them from doing what they think is right. It almost seems he is afraid the Fed will do something to actually improve the economy and hurt his chances of election. If that is his reason, how screwed up is that?
Disclosures: None.
What He Said . . .
Hey, if Buffet says we should raise his taxes, who am I to disagree.
http://www.reuters.com/article/2011/08/15/us-buffett-tax-idUSTRE77E13V20110815?feedType=RSS&feedName=topNews&rpc=71
Note, he focuses on the super rich and not just those over $250,000. While it will raise less money, raising some is better than raising none, and given the vast disparity in wealth these days, with the squeeze on the middle-class, I suspect you would still get a lot of money raising taxes on those making over $1 million a year or companies making over $5 million a year. I am not saying go over board but when billionaires are paying just 17% I think getting them up to paying what the rest of us are paying makes some sense. Seriously, Buffet paying perhaps 30% to 35% might be fair, and he agrees. Certainly this move would be much tougher for the Tea Party to oppose and justify and it would erode a lot of the Republican base.
Disclosures: None.
http://www.reuters.com/article/2011/08/15/us-buffett-tax-idUSTRE77E13V20110815?feedType=RSS&feedName=topNews&rpc=71
Note, he focuses on the super rich and not just those over $250,000. While it will raise less money, raising some is better than raising none, and given the vast disparity in wealth these days, with the squeeze on the middle-class, I suspect you would still get a lot of money raising taxes on those making over $1 million a year or companies making over $5 million a year. I am not saying go over board but when billionaires are paying just 17% I think getting them up to paying what the rest of us are paying makes some sense. Seriously, Buffet paying perhaps 30% to 35% might be fair, and he agrees. Certainly this move would be much tougher for the Tea Party to oppose and justify and it would erode a lot of the Republican base.
Disclosures: None.
Saturday, August 13, 2011
Excuse Me Sir, But Do You Want Another Dip With That Recession?
I am on vacation and not about to do a long post, but I just read this nice piece and thought I would pass it on; it is about the prospect of a double-dip recession. Apparently economists are now up into the 30-40% range of expecting it and only a few months ago were around 15%. Seriously? I never went below 50%, though my timing has been off a smidgen.
http://finance.fortune.cnn.com/2011/08/12/recession-forecasts-economists/
Indeed, I, for one, do not believe we ever got out of the last recession. The surge we have seen has been stimulus spending, QE and QE2, not to mention the effects of stimulus and the like in other countries. In other words, it has been a manufactured economic bounce from the recession and I do not count that in my books. Had it worked in stimulating new growth, that may have been another story, but it did not work, so we really never recovered from the last recession. It was just masked over by government actions.
So where do I stand on the odds of a double-dip (assuming we ever really came out of the first one)? I side with Mr. Rosenberg in the linked article. He seems to not be wearing rose colored glasses. I think the double-dip has already arrived. All we need now is the sprinkles.
Disclosures: None.
http://finance.fortune.cnn.com/2011/08/12/recession-forecasts-economists/
Indeed, I, for one, do not believe we ever got out of the last recession. The surge we have seen has been stimulus spending, QE and QE2, not to mention the effects of stimulus and the like in other countries. In other words, it has been a manufactured economic bounce from the recession and I do not count that in my books. Had it worked in stimulating new growth, that may have been another story, but it did not work, so we really never recovered from the last recession. It was just masked over by government actions.
So where do I stand on the odds of a double-dip (assuming we ever really came out of the first one)? I side with Mr. Rosenberg in the linked article. He seems to not be wearing rose colored glasses. I think the double-dip has already arrived. All we need now is the sprinkles.
Disclosures: None.
Monday, August 8, 2011
Holy &*$%! Batman!!!
Well I suggested last Friday that the first ever downgrade of U.S. credit would be ugly, but I did not see it being this ugly. I mean shave that dog's butt and teach it to walk backwards ugly. I mean, if ugly Betty were this ugly no one could bear to watch the show. I mean . . . well you get the point, damn ugly!
Oh my God, we are back to the level the markets were at - 10 months ago!!! Oh no, we lost 10 months of growth!! The end is here!! Run for your lives!!
Wait a second, did I say just 10 months of growth? Now I realize the 2008 rescession wiped out a good decade and the last 10 months of growth was cherished by many looking to retire, but it is not a game ender. We are just shocked with the speed that 10 months evaporated in a couple of weeks.
In my view, the sell off is perhaps too ugly. Despite the downgrades people are selling their equities and buying what - you guessed it, Treasuries. So they are running to the debt that just had a credit downgrade, and no one really believes the U.S. cannot finance its debt payments. This results in rates going down for Treasuries, which means loans tied to same are also reduced, so even if the gap for loans between Treasuries and loan rates widen due to this, they are widening against a lower base - at least for the moment.
You also have oil that dipped below $80 a barrel today, so that will help a lot of folks.
And U.S. corporations are still doing quite well. Berkshire announced a 74% increase in profits last week. Most U.S. corporations have plenty of cash and decent looking profits. Sure, this is coming from off-shore profits in emerging markets, but base case they are doing pretty well, so a sell off in the equities is perhaps not justified to the extent or at the rate it has happened.
Still, as I write over seas equities are taking a big dive, U.S. futures are showing another 2% down in the morning and the uglieness continues. It will, however, stabilize. Keep the faith.
This is not to say all is fine on the western front. Corporate profits aside, the U.S. is likely entering a new recession. House prices, unemployment, deficit reduction and other factors are a deadly brew making it inevitable in my book. Now I suspect in time QE3 will slow the rescession. It is not here yet and the Fed is not likely to go there tomorrow, but it is coming. I wrote in July that it was baked in the cake at a time when something like 85% of the economists were saying it would never happen. I think that percentage has now changed just a tad. Perhaps still only 50/50 or so, but I am winning converts.
Don't get me started, however, on the EU. I predicted at the beginning of 2009 that the EU may lose the U, or at least some members, and it seems I am starting to get some traction on this prediction. Yes, PIIGS get slaughtered.
Disclosures: I do own some U.S. Treasuries but otherwise hold no investments discussed here and do not intend to buy any in the next 72 hours.
Oh my God, we are back to the level the markets were at - 10 months ago!!! Oh no, we lost 10 months of growth!! The end is here!! Run for your lives!!
Wait a second, did I say just 10 months of growth? Now I realize the 2008 rescession wiped out a good decade and the last 10 months of growth was cherished by many looking to retire, but it is not a game ender. We are just shocked with the speed that 10 months evaporated in a couple of weeks.
In my view, the sell off is perhaps too ugly. Despite the downgrades people are selling their equities and buying what - you guessed it, Treasuries. So they are running to the debt that just had a credit downgrade, and no one really believes the U.S. cannot finance its debt payments. This results in rates going down for Treasuries, which means loans tied to same are also reduced, so even if the gap for loans between Treasuries and loan rates widen due to this, they are widening against a lower base - at least for the moment.
You also have oil that dipped below $80 a barrel today, so that will help a lot of folks.
And U.S. corporations are still doing quite well. Berkshire announced a 74% increase in profits last week. Most U.S. corporations have plenty of cash and decent looking profits. Sure, this is coming from off-shore profits in emerging markets, but base case they are doing pretty well, so a sell off in the equities is perhaps not justified to the extent or at the rate it has happened.
Still, as I write over seas equities are taking a big dive, U.S. futures are showing another 2% down in the morning and the uglieness continues. It will, however, stabilize. Keep the faith.
This is not to say all is fine on the western front. Corporate profits aside, the U.S. is likely entering a new recession. House prices, unemployment, deficit reduction and other factors are a deadly brew making it inevitable in my book. Now I suspect in time QE3 will slow the rescession. It is not here yet and the Fed is not likely to go there tomorrow, but it is coming. I wrote in July that it was baked in the cake at a time when something like 85% of the economists were saying it would never happen. I think that percentage has now changed just a tad. Perhaps still only 50/50 or so, but I am winning converts.
Don't get me started, however, on the EU. I predicted at the beginning of 2009 that the EU may lose the U, or at least some members, and it seems I am starting to get some traction on this prediction. Yes, PIIGS get slaughtered.
Disclosures: I do own some U.S. Treasuries but otherwise hold no investments discussed here and do not intend to buy any in the next 72 hours.
Friday, August 5, 2011
Ugly Ahead - Hold On To Your Seats
Here are a few things you need to know about today. The employment numbers were resoundingly stated as being "good" by every source I read, up 117,000, which is better than expected. Problem is we need roughly twice that many new jobs to start seriously reducing unemployment.
But wait, you say, unemployment went down today from 9.2% to 9.1%, so we are making improvements, right? And here my friends is a reason to understand the figures. The "official" unemployment numbers can go down a number of ways, even aside from government manipulation. One way is for enough jobs to be created to lower the ranks of unemployed - and that did not happen. Another is for a lot of people to give up looking so they are no longer officially considered among the unemployed - and that is what happened. Yep, the number of people seeking jobs decreased over 150,000. In other words, 150,000+ simply gave up looking, which I take as a sign of how bad things are out there.
http://www.foxnews.com/politics/2011/08/05/when-good-news-is-bad-unemployment-rate-drops-as-workers-bolt-labor-force/
So the "good" numbers are simply better than expected and not so good. Just be prepared.
I have triple A (as in the auto related company) and the U.S. government (as in the rating) does not!
Well, S&P just downgraded the U.S. credit rating below AAA. Now folks are saying there should not be too much market reaction:
http://www.reuters.com/article/2011/08/06/us-usa-debt-downgrade-view-idUSTRE77504J20110806
But the first downgrade in, well, forever, is no big deal, really? S&P also says there may be further cuts if we do not do the deficit reduction that we are anticipating. I have to think this is a big deal, even if not unexpected as S&P has been calling for this for a while.
The postal service losing $3 billion and being on the verge of bankruptcy also cannot help this situation. It has been coming for a while, which has me questioning why the postal union is running radios ads on how the service is self-sufficient and not dependent on taxpayer dollars, but what do I know.
http://content.usatoday.com/communities/ondeadline/post/2011/08/postal-service-warns-of-default/1?csp=34news
Billionaires in the News
But Mr. 1, a Mr. Slim from Mexico who has had the number 1 rank for two years in a row, is having a smidge of issues. I read yesterday that this past week he has lost $8 billion in his portfolio. Ouch!! I once lost $8 billion, and though it was not in nearly that short of a period of time, it really hurt. Now Slim only has a little over $63 billion left to survive on, and my heart really goes out to the guy. What can he do, where will he eat?
Other than this, everything is fine. Everything in Europe will be fine next week. Citizens are not still protesting in the streets in Greece and they are not quickly taking all their money out of the banks. Spain is fine. Italy just swallowed the pill and will be fine. The PIIGS are back in their safe pens and no problems exist. And before you act on this paragraph, note that not a lick of it is true.
Okay, I wish that were true, but as I said yesterday, PIIGS get slaughtered. It is just a matter of time. And this is despite whatever spending reductions the ECU requires. Did I mention that reductions in deficit spending hurt the GDP and worsen recessions? A worsened GDP is all the EU needs right now, but I agree deficits need to come down. Not an easy choice.
Disclosures: I do not own any equities mentioned in this piece and do not intend to buy any in the next 72 hours.
But wait, you say, unemployment went down today from 9.2% to 9.1%, so we are making improvements, right? And here my friends is a reason to understand the figures. The "official" unemployment numbers can go down a number of ways, even aside from government manipulation. One way is for enough jobs to be created to lower the ranks of unemployed - and that did not happen. Another is for a lot of people to give up looking so they are no longer officially considered among the unemployed - and that is what happened. Yep, the number of people seeking jobs decreased over 150,000. In other words, 150,000+ simply gave up looking, which I take as a sign of how bad things are out there.
http://www.foxnews.com/politics/2011/08/05/when-good-news-is-bad-unemployment-rate-drops-as-workers-bolt-labor-force/
So the "good" numbers are simply better than expected and not so good. Just be prepared.
I have triple A (as in the auto related company) and the U.S. government (as in the rating) does not!
Well, S&P just downgraded the U.S. credit rating below AAA. Now folks are saying there should not be too much market reaction:
http://www.reuters.com/article/2011/08/06/us-usa-debt-downgrade-view-idUSTRE77504J20110806
But the first downgrade in, well, forever, is no big deal, really? S&P also says there may be further cuts if we do not do the deficit reduction that we are anticipating. I have to think this is a big deal, even if not unexpected as S&P has been calling for this for a while.
The postal service losing $3 billion and being on the verge of bankruptcy also cannot help this situation. It has been coming for a while, which has me questioning why the postal union is running radios ads on how the service is self-sufficient and not dependent on taxpayer dollars, but what do I know.
http://content.usatoday.com/communities/ondeadline/post/2011/08/postal-service-warns-of-default/1?csp=34news
Billionaires in the News
Now I could say all is terrible but Mr. 3 in the Fortune 100 list is having a good day. Berkshire Hathaway just announced profits up like 74%, so Buffet is having a pretty good day.
But Mr. 1, a Mr. Slim from Mexico who has had the number 1 rank for two years in a row, is having a smidge of issues. I read yesterday that this past week he has lost $8 billion in his portfolio. Ouch!! I once lost $8 billion, and though it was not in nearly that short of a period of time, it really hurt. Now Slim only has a little over $63 billion left to survive on, and my heart really goes out to the guy. What can he do, where will he eat?
Other than this, everything is fine. Everything in Europe will be fine next week. Citizens are not still protesting in the streets in Greece and they are not quickly taking all their money out of the banks. Spain is fine. Italy just swallowed the pill and will be fine. The PIIGS are back in their safe pens and no problems exist. And before you act on this paragraph, note that not a lick of it is true.
Okay, I wish that were true, but as I said yesterday, PIIGS get slaughtered. It is just a matter of time. And this is despite whatever spending reductions the ECU requires. Did I mention that reductions in deficit spending hurt the GDP and worsen recessions? A worsened GDP is all the EU needs right now, but I agree deficits need to come down. Not an easy choice.
Disclosures: I do not own any equities mentioned in this piece and do not intend to buy any in the next 72 hours.
Thursday, August 4, 2011
Silver Lining
Okay, I am the first to admit that I have been a sky-is-falling kind of guy for quite a while, which is against my optimistic grain. Despite the negativity of my posts of late (for three years), I have to say that the market dump today took me off guard. Yes, I had some put options in place and actually made money today, but I was not expecting what happened.
Here is the deal. The bigger international companies in the U.S. are making their money overseas, largely in emerging markets. For the most part, their earnings and profits are not suffering too bad, so for them to take a big hit in the market is, perhaps, not justified. I say "perhaps" as the problems in the EU and U.S. can bleed over to emerging markets readliy but they are not suffering just yet, have a fair amount of cash and, I think, are not deserving just yet a 5% stock hit. But I am not making any stock recommendations.
That said, in time I think these international companies and emerging economies have to be affected by what is going on in the EU, US and elsewhere. We are their prime markets and in time their economies will have to react.
And big corporations still doing well is not necessarily a benefit for U.S. workers. Jobs are being shipped overseas, the growth is overseas and everything else seems to be overseas. It is not leading to U.S. job creation and it will not going forward. So the good news is that the big corporations may still be making money but the bad news is that it is not supporting the U.S. economy. So, judge for yourself, what this means in terms of silver lining. The U.S. will suck wind for years to come in economic conditions even if some companies will dodge the bullet due to emerging market prospects.
Disclosures: I have some put options that I have had for over a year and they did well today, but they are all down over 50% and will likely remain so despite what the market does in weeks to come. I just kept them in the chance that what is happening now would happen.
Here is the deal. The bigger international companies in the U.S. are making their money overseas, largely in emerging markets. For the most part, their earnings and profits are not suffering too bad, so for them to take a big hit in the market is, perhaps, not justified. I say "perhaps" as the problems in the EU and U.S. can bleed over to emerging markets readliy but they are not suffering just yet, have a fair amount of cash and, I think, are not deserving just yet a 5% stock hit. But I am not making any stock recommendations.
That said, in time I think these international companies and emerging economies have to be affected by what is going on in the EU, US and elsewhere. We are their prime markets and in time their economies will have to react.
And big corporations still doing well is not necessarily a benefit for U.S. workers. Jobs are being shipped overseas, the growth is overseas and everything else seems to be overseas. It is not leading to U.S. job creation and it will not going forward. So the good news is that the big corporations may still be making money but the bad news is that it is not supporting the U.S. economy. So, judge for yourself, what this means in terms of silver lining. The U.S. will suck wind for years to come in economic conditions even if some companies will dodge the bullet due to emerging market prospects.
Disclosures: I have some put options that I have had for over a year and they did well today, but they are all down over 50% and will likely remain so despite what the market does in weeks to come. I just kept them in the chance that what is happening now would happen.
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