why is that market falling so sharply again

Good morning.

The DJIA is down 200 points as I write, and the S&P 500 is worse by percentage, erasing all of yesterday's gains and then some. Part of that, I think, is traders taking a better look at yesterday's GDP numbers, which were billed as better than expected but matched the consensus I saw, but whatever. Sure, a lot of it was fakeonomics, as expected out of the stimulus package, but Karl at Market Ticker notes, "Disposable personal income decreased in nominal terms q/o/q by 5.9% while in real terms (inflation adjusted) it decreased q/o/q by 7.2%... an enormous swing in purchasing power and not in the right direction!" He also doesn't trust some of the numbers in it, particularly:

Looking inside the data, the "big change" in private domestic investment is all residential fixed - up 23.4%. I don't believe it. I've been scouring the homebuilder earnings releases and data, and I don't see the numbers that support this. An improvement over the ditch-diving of the last many quarters, yes - but a 23.4% increase, a swing of fifty percent from Q2-Q3? Oh hell no. Where is it? It's not in Home Depot's or Lowe's quarterly results, it's not in the homebuilders, and I can't find it in the suppliers (lumber companies, etc) either. This sort of move would result in monstrous top-line revenue increases reported by firms in this sector and that simply has not happened.

But you can read all of that here, if you like.

And, perhaps predictably, today we learned that personal income and personal spending - which will be needed to drive the US out of this recession if the previous consumer-based economy is to continue - were headlined as slightly down last month. Most people are reporting it as "flat," as the down is very slight, so still; down, when expectations were for a rise. But again, read further into the press release; what the BEA calls "private wage and salary disbursements" - wages, salaries, what you typically see as "earned income" - fell in every sector. What kind of income was up? Rental income - to no surprise, as all those evicted former homeowners have to live somewhere - and "personal current transfer receipts." What're "personal current transfer receipts"? As defined by the same agency: "Personal current transfer receipts are benefits received by persons for which no current services are performed. They are payments by governments and businesses to individuals and nonprofit institutions serving individuals," which is to say government benefits and private charity, with about 95% of it being government (same link). Take government out, and personal income fell significantly. Not disastrously; but significantly.

In short, economic activity still hasn't been keeping personal income flat, and if you factor in official inflation, spending actually fell 0.6%, as well.

First-time jobless claims fell 1,000, which is statistically no movement. A meaningful fall had been expected. The four-week average of first-time claims declined 6,000 to 526,250, as we seem to be settling in around the 525,000 number. Continuing claims (four-week average) fell by 78,750 to 5.96 million; I don't have the number directly in front of me right now but I think about a quarter of that is benefits expiration.

Consumer sentiment numbers are down from September, but less bad than it looked like they'd be at the middle of the month. Importantly:

The majority of consumers reported that their finances had worsened for the thirteenth straight month in October. This is the longest decline in the history of the survey.

A record-low percentage of consumers cited income gains in the month and for the first time in sixty years, the majority of families expected their incomes to remain unchanged or decline during the year ahead.

As a result, consumers now put debt reduction and increased savings at the top of their agendas rather than the quick resumption of spending plans, said Richard Curtin, the director of the Reuters/UMich survey.

None of this looks good for the holiday shopping season. None of it.

Oh, and even though you should never, ever read comment pages on news sites, I scrolled down past the end of that consumer confidence article on Marketwatch and spotted this little bit of office humour:

The economy, How Bad Is It?

The economy is so bad... I got a pre-declined credit card in the mail.

The economy is so bad... If the bank returns your check marked "Insufficient Funds," you call them and ask if they meant you or them.

The economy is so bad... I ordered a burger at McDonalds and the kid behind the counter asked, "Can you afford fries with that?"

The economy is so bad... Motel Six won't leave the light on anymore.

The economy is so bad... The Mafia is laying off judges, and Exxon-Mobil laid off 25 Congressmen.

The economy is so bad... Dick Cheney took his stockbroker hunting.

And so on. Apparently, both "grin and bear it" and Vaudevillian humour are making comebacks. We're doomed. -_^

DIJA now down 250, S&P closing on -3%. Good luck, everyone.

FDIC Friday and others

Good evening. Nine banks were taken over by the FDIC today, as well as one credit union (Second Baptist Church Credit Union) by the NCUA. Calculate Risk has updated their unofficial list of Problem Banks, which has grown to 500.

In other bank news, Reports say Citibank will write down US$10B in the 4th quarter. Citibank denies the story.

Harper's Magazine has a good story on the failure of derivatives reform in Congress; you should read it, it's really sad. Naked Capitalism calls it "Bank-Favoring Censorship by Congress," and that's fair.

In real estate lending news, Mortgage delinquencies keep soaring. These numbers are quite bad. OptionARM delinquencies (30-day) in particular are up to almost 50%. Karl notes that these loans were never intended to be paid back; "These loans were... sold as a means to "buy" a home, but the lenders knew full well that this could never, ever happen given the structure of the note," which typically has payments more than doubling once the reset hit.

Over in bonds, we have a couple of items. Hedgie has this report by welling@weeden on the municipal bond market, outlining an impending collapse in the muni bond market. (If that doc view isn't working for you, try this one.) Welling@weeden are predicting a series of municipal bankruptcies triggered in nontrivial part by plummeting tax receipts, pension fund failures, triggered, in turn, by derivative and other bond market implosions, and so on.

Minyanville's Ron Coby is doing something I've never seen before: telling readers to GTFO of the bond market, all of it, right now. Meanwhile, David Waggoner's Wednesday call of Thursday as a multi-year stock 'top' looks kind of shiny today, but one day means nothing.

Here's an update of that predicted vs. actual unemployment chart. Keep this thing in mind whenever thinking about forward projections. Meanwhile, Ye Olde Newe Yorke Times has this article on how the job market is hammering salaries of existing employees.

Here's an article with a list of major Chinese energy purchases over the last year. It links to several other original-source articles for details, so it's at least a little bit of an overview.

Looking back a couple of days - things I didn't post before - Mish has more commentary on the GDP report from Thursday. He also sees it as mostly negative under the hood. Dr. Roubini at RGE Monitor, by contrast, sees good things in it, but he also takes the builder numbers at face value. He also notes that the consensus figures going onto the report were lower than I had seen, at 3.2% annualised, so it is a beat. (My consensus numbers were past date.)

eta: However, new data is in today on EU unemployment and lending, and the numbers are all bad. Unemployment is up to 9.7%, and bank lending has almost stalled out. Mish also does a Friday night wrap-up of accelerated Black Friday marketing - starting now. Sears, for example, plans to have Black Friday every Friday through Thanksgiving. This smells more like something engineered to create buyer fatigue than buyer excitement, tho' that's obviously not the intent.

Enjoy the weekend, Samhain, and Halloween, and good luck with the winter half of the year.