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Sep. 8th, 2009
peeking my head above water
Sep. 8th, 2009 11:58 pmI should really go to bed, but apparently I'm not yet. That's okay.
There is a consensus now that the global economy is in or near recovery; the International Monetary Fund is saying so for Europe, and the usual talking heads are all talking about everything being Up! Up! Up! - tho' of course they were saying that throughout the Down Down Down, too, but let's ignore that for the moment. The only non-optimistic commentary you're hearing is about jobs; that the job situation will continue to worsen for another six months or so before things stabilise and head up.
This latter point makes an important assumption - that consumption will rise even as joblessness rises, and this will be a consumer-based spend-out of the recession. This has happened in the past; joblessness is known as a trailing indicator in many ways because of this fact. This spending pickup has happened primarily on pickups in consumer borrowing. Also, in Keyesnian economic theory, it happens through government borrowing via deficit spending. Without that happening again, any nascent recovery will be stillborn.
First, though, let's look at job creation. Job creation isn't happening in the US. The employment numbers were wretchedly bad, particularly in the details. (Um, that won't work for most of you. Try this copy instead.) If you follow only one link about employment in this post, follow that one. This chart from Mish Shedlock compares various job loss rates across recessions. The only one worse in terms of total official job losses had already turned around by this time; the only one with a later turnaround date didn't have job losses nearly as severe. And remember, the current numbers are being padded through the birth-death model farce, which produced yet another year of added jobs pulled out of the black-box model. (This model has not gone materially negative throughout this recession. It's had one down month which was quickly consumed in sharply up months surrounding the one down. It is a joke.) Job creation isn't lining up for the future, either, at least not yet - Gallup reports the percent of companies planning on hiring isn't rising from the very low levels it has had throughout the last several months. So that leaves the expanded-borrowing scenario.
The problem with the consumer portion of this "borrowing" scenario is in the reality as expressed so far:
In other words, so far, we aren't seeing the consumer start to borrow more. We're seeing consumer borrowing shrink, a lot. Record amounts. Lower income, lower borrowing, lower spending - none of these create economic recovery.
Therefore, here are a collection of contrarian viewpoints to the latest Up! Up! Up! consensus. The United Nations Conference on Trade and Development thinks this is not a "real recovery" in any way. Marketwatch's Paul Ferrell thinks that the Fed has successfully inflated another bubble, but that this will pop even more quickly than the 2002-2003 bubble, with Round Three Down being no damn fun at all. Karl Denninger wrote up a long article in two parts over the weekend (Part 1, Part 2) laying out the math behind his similar opinion. It's long (note the two parts), but agree with him or not, his charts are interesting, and his notes on bank charge-off rates should be read. So should his per-capita credit ratio charts, and his discussion of lending ratios. I like that he shows his sources so you can check out his material if you want. Finally, Dr. Roubini at RGE Monitor is still onboard the Keyesnian train, but thinks the recession will be "U-shaped" - meaning a non-recovery technical recovery, ala Japan in the 1990s. He also thinks the possibility of a "W" recession - with a false recovery peaking now or in the next few months - is increasingly likely for various reasons.
In other news, construction loans are failing at enormous rates, putting yet more stress on banks. The Baltic Dry Index has been heading back down again - not to the lows of six months ago, but it's still significant. Zero Hedge thinks the Fed will monetise the most recently issued agencies, as they've been effectively monetising the T-bills the Fed has been buying. Tyler also notes, "the Fed is already facilitating the rotation of MBS and Agencies by foreign CBs into Treasuries. At this rate a $5 trillion Federal Reserve balance sheet by this time next year is looking conservative." Alphaville thinks that China's buying binge has been in part a rotation out of dollar holdings and into hard assets: "This looming renminbi 'black swan,' as they label it, means the only sensible long term option is to be short the greenback and long commodities and commodity-linked companies." Dr. Roubini thinks the US dollar must and will weaken significantly further, tho' he doesn't think a currency crash is likely. Mish Shedlock looks at stated bank profits and has qualms, ones that might be described as serious.
And that's all for now as I really should get to bed. Good luck.
There is a consensus now that the global economy is in or near recovery; the International Monetary Fund is saying so for Europe, and the usual talking heads are all talking about everything being Up! Up! Up! - tho' of course they were saying that throughout the Down Down Down, too, but let's ignore that for the moment. The only non-optimistic commentary you're hearing is about jobs; that the job situation will continue to worsen for another six months or so before things stabilise and head up.
This latter point makes an important assumption - that consumption will rise even as joblessness rises, and this will be a consumer-based spend-out of the recession. This has happened in the past; joblessness is known as a trailing indicator in many ways because of this fact. This spending pickup has happened primarily on pickups in consumer borrowing. Also, in Keyesnian economic theory, it happens through government borrowing via deficit spending. Without that happening again, any nascent recovery will be stillborn.
First, though, let's look at job creation. Job creation isn't happening in the US. The employment numbers were wretchedly bad, particularly in the details. (Um, that won't work for most of you. Try this copy instead.) If you follow only one link about employment in this post, follow that one. This chart from Mish Shedlock compares various job loss rates across recessions. The only one worse in terms of total official job losses had already turned around by this time; the only one with a later turnaround date didn't have job losses nearly as severe. And remember, the current numbers are being padded through the birth-death model farce, which produced yet another year of added jobs pulled out of the black-box model. (This model has not gone materially negative throughout this recession. It's had one down month which was quickly consumed in sharply up months surrounding the one down. It is a joke.) Job creation isn't lining up for the future, either, at least not yet - Gallup reports the percent of companies planning on hiring isn't rising from the very low levels it has had throughout the last several months. So that leaves the expanded-borrowing scenario.
The problem with the consumer portion of this "borrowing" scenario is in the reality as expressed so far:
*U.S. JULY CONSUMER CREDIT WAS FORECAST TO DROP BY $4 BILLION(Series of alerts from Marketwatch and Bloomberg, collected by Karl Denninger and others over at Ticker Forum.) As of June and July, and particularly as of July, the consumer wasn't borrowing. August sales numbers were terrible, as well. Gallup reports that the current 'frugality' is becoming the new 'normal' - this is where you start to get the long-haul mindset changes I've talked about several times before.
*U.S. JULY CREDIT CARD, OTHER REVOLVING DEBT FALLS $6.1 BLN
*U.S. JULY NON-REVOLVING BORROWING FALLS RECORD $15.4 BILLION
*U.S. JUNE CREDIT FALLS $15.5 BLN, REVISED FROM $10.3 BLN DROP
*U.S. JULY CONSUMER CREDIT FALLS RECORD $21.6 BILLION, FED SAYS
In other words, so far, we aren't seeing the consumer start to borrow more. We're seeing consumer borrowing shrink, a lot. Record amounts. Lower income, lower borrowing, lower spending - none of these create economic recovery.
Therefore, here are a collection of contrarian viewpoints to the latest Up! Up! Up! consensus. The United Nations Conference on Trade and Development thinks this is not a "real recovery" in any way. Marketwatch's Paul Ferrell thinks that the Fed has successfully inflated another bubble, but that this will pop even more quickly than the 2002-2003 bubble, with Round Three Down being no damn fun at all. Karl Denninger wrote up a long article in two parts over the weekend (Part 1, Part 2) laying out the math behind his similar opinion. It's long (note the two parts), but agree with him or not, his charts are interesting, and his notes on bank charge-off rates should be read. So should his per-capita credit ratio charts, and his discussion of lending ratios. I like that he shows his sources so you can check out his material if you want. Finally, Dr. Roubini at RGE Monitor is still onboard the Keyesnian train, but thinks the recession will be "U-shaped" - meaning a non-recovery technical recovery, ala Japan in the 1990s. He also thinks the possibility of a "W" recession - with a false recovery peaking now or in the next few months - is increasingly likely for various reasons.
In other news, construction loans are failing at enormous rates, putting yet more stress on banks. The Baltic Dry Index has been heading back down again - not to the lows of six months ago, but it's still significant. Zero Hedge thinks the Fed will monetise the most recently issued agencies, as they've been effectively monetising the T-bills the Fed has been buying. Tyler also notes, "the Fed is already facilitating the rotation of MBS and Agencies by foreign CBs into Treasuries. At this rate a $5 trillion Federal Reserve balance sheet by this time next year is looking conservative." Alphaville thinks that China's buying binge has been in part a rotation out of dollar holdings and into hard assets: "This looming renminbi 'black swan,' as they label it, means the only sensible long term option is to be short the greenback and long commodities and commodity-linked companies." Dr. Roubini thinks the US dollar must and will weaken significantly further, tho' he doesn't think a currency crash is likely. Mish Shedlock looks at stated bank profits and has qualms, ones that might be described as serious.
And that's all for now as I really should get to bed. Good luck.
