The Big Picture | April 2008

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Defending Bernanke

Wednesday, April 30, 2008 | 07:57 PM

in Commodities | Federal Reserve | Inflation | M&A

Randall Forsyth does a good job explaining what FOMC Chair Ben Bernanke has done right:

"Yet much of the criticism seems unfair and after the fact. Not only have Bernanke's unorthodox moves staved off a full-fledged financial meltdown, but they also have done so while reducing the inflation risks inherent in the traditional policy response of merely slashing interest rates.

That's not my opinion. It is the one rendered by the currency, credit, Treasury, equity and gold markets. Since the credit crisis peaked (or reached its nadir, depending on your point of view) on St. Patrick's Day, the Monday after the Sunday night special with the Bear takeover by JPMorgan Chase, the extreme tensions in all those markets have eased.

It was not just the Bear deal per se. The Fed established the Primary Dealer Credit Facility, which let Wall Street investment firms to borrow from the central bank, a privilege reserved for commercial banks, except for the rarest instances in the Great Depression.

The PDCF joined other, new Fed instruments to funnel liquidity where it was needed most. Last December, the central bank began the Term Auction Facility, or TAF, which permitted banks to borrow anonymously for longer periods than via the traditional discount window borrowings, which were to cover overnight shortfalls. TAF also permitted borrowing against lesser-quality but still prime collateral.

The Fed also established the Term Securities Lending Facility, which allowed banks and dealers to swap their illiquid but high-quality government and mortgage-backed securities for Treasuries. It was like a pawnshop for the financial system, allowing Wall Street to exchange their (real, not fake) Rolexes for good-as-cash obligations of Uncle Sam."

What say ye? How much of the benefit of the doubt do you want to give Ben Bernanke?

Source:
Hey, Bernanke Bashers: His Moves Have Been the Right Ones
RANDALL W. FORSYTH
Barron's April 29, 2008
http://online.barrons.com/article/SB120939353075949559.html

Jittery

Wednesday, April 30, 2008 | 04:15 PM

in Federal Reserve | Psychology/Sentiment

Amusing:

Yahoo Tech Ticker

Wednesday, April 30, 2008 | 02:14 PM

in Economy | Federal Reserve | Inflation

Twice in one day!

I am off to the Nasdaq, to discuss the Fed decision, and the Microsoft/Yahoo merger / tea party. So I will be out of pocket by the time the news gets released.

Feel free to use the comments to elucidate . . .

UPDATE: APRIL 30, 2008 5:33PM

Worldwide Fertilizer Usage

Wednesday, April 30, 2008 | 01:30 PM

in Commodities | Data Analysis

Speaking of inflation driven food prices: Here's a little infoporn for anyone who followed us into Mosaic (MOS) or trade in Potash (POT) or others:

click for ginormous map

Source:
Shortages Threaten Farmers’ Key Tool: Fertilizer
KEITH BRADSHER and ANDREW MARTIN
NYT April 30, 2008
http://www.nytimes.com/2008/04/30/business/worldbusiness/30fertilizer.html

Congratulations! Its a Recession!

Wednesday, April 30, 2008 | 09:49 AM

in Data Analysis | Economy | Inflation

It doesn't take too much advanced mathematics to note that by several historical methods for determining whether the economy is contracting or expanding, we are now in a recession.

Consider a true inflation measure of GDP, per capita measure, or the NBER methodology. All three show economic contraction.

Let's start with our "Reality-based" analysis:

The only conclusion an honest read of inflation produces is that both Q4 2007 and Q1 2008 were positive in nominal terms, but negative in Real terms. Remember, the goal of GDP should be to figure out how much the economy is expanding or contracting -- not how much prices rose.

By any honest measure of inflation -- and not the 3.5% BEA price index for gross domestic purchases -- both of the past two quarters would have been negative. How can we have an understated inflation rate of 4%, and a GDP Price Deflator of just 2.6%?

2) The NBER methodology: The 2 consecutive quarters of GDP contraction is not the only metric for identifying recessions. According to the econo-geeks at the National Bureau of Economic Research, a recession is defined as a "significant decline in economic activity spread across the economy, lasting more than a few months."

Here's their specific language:

"Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology."

Hence, if we follow what the people who actually determine what is and isn't a recession say abnout the matter, and not just limit our analysis to GDP, then its pretty clear we are now experiencing an economic contraction.

Rex Nutting reminds us that 1) After-tax inflation adjusted incomes have been stagnant since September; inflation-adjusted sales have fallen at a 5.2% annual pace in the past three months, and are essentially unchanged from six months ago; industrial output has stalled;

UPDATE: Rex adds that spending on services rose 3.4%, including a 14% rise in real spending (seasonally adjusted) on household heating. It’s quite likely that this figure doesn’t accurately adjust for the rising cost of natural gas and heating oil this year. About one-third of the total increase in GDP ($17.4 billion) was an increase in the spending on heating costs ($5.5 billion). Hence, even more Inflation-driven GDP.

By any reasonable measure of the NBER delineated metrics, we are already in a recession.

3) Per Capita Measure, favored by Merrill Lynch North American Chief Economist David Rosenberg, is to simply look to see if the economy is expanding faster than the population. With the US population expanding by 1.0 - 1.5% per year, it takes economic growth of at least that merely to stay in place. Hence, Rosenberg's claim that GDP growth on a per capita basis is actually are contracting sine Q4 2007.

Previously:
Merrill Lynch: Per Capita Recession Began in Q4 (April 2008) http://bigpicture.typepad.com/comments/2008/04/merrill-lynch-p.html

GDP, Inflation & Recession
http://bigpicture.typepad.com/comments/2008/04/gdp-inflation-r.html

Sources:
GROSS DOMESTIC PRODUCT: FIRST QUARTER 2008 (ADVANCE)
APRIL 30, 2008
http://www.bea.gov/newsreleases/national/gdp/2008/pdf/gdp108a.pdf

Business Cycle Dating Committee, National Bureau of Economic Research
NBER, January 7, 2008
http://www.nber.org/cycles/jan08bcdc_memo.html

Global Inflation Continues to Accelerate
Phil Izzo
Economics Blog, April 29, 2008, 11:30 am
http://blogs.wsj.com/economics/2008/04/29/global-inflation-continues-to-accelerate/

U.S. could have recession without drop in GDP
Analysis: Growth isn't everything; jobs and incomes count more
Rex Nutting
MarketWatch, 8:50 a.m. EDT April 30, 2008
http://tinyurl.com/4cab83

GDP is . . . 0.6%

Wednesday, April 30, 2008 | 08:29 AM

in Data Analysis | Economy

I will be out of pocket when GDP gets released, so feel free to go to the official BEA release; use the comments below to update/discuss the actual GDP data points.

A few things to look for beyond the actual number: Corporate profits, PCE, and seasonal adjustments.

~~~

UPDATE: April 30, 2008 9:47am

If we ignore the real (inflation adjusted) factor, as we delve deeper into the data, we see that Q1 spending (personal consumption expenditures) rose just 1.0% versus 2.3% in Q4. This matches Q2 2001's gains.

How did the rest of the numbers look?

GDP increased 3.2% to an annualized $14.19 trillion (in current dollars);
Gross private domestic investment was down -0.7%;
Business fixed investment: -2.5%.
Residential investment data actually accelerated downwards; the number -26.7% was the biggest drop since 1981. (who keeps calling those Real Estate bottoms?)
Purchases of durable goods fell 6.1%
Q1 non-durables spending dropped 1.3%.
Business spending fell by 2.5%.
Investment in structures went down 6.2%.
Equipment and software outlays decreased 0.7%.

The Final sales of domestic product (GDP less change in private inventories) fell 0.2%; final domestic sales (gross domestic product, excluding additions to stocks and international trade) dropped 0.4%. THIS WAS THE FIRST DECLINE SINCE THE 1991 RECESSION.

A few positives: First-quarter spending rose 1.0%, Services gained 3.4% and exports rose by 5.5%. While local governments are struggling, Uncle Sam remains profligate: Federal Government consumptions were +4.6% versus State and Local Govt: +0.5%.

Also helping to keep nominal GDP in the green: Inventory builds. They rose slightly for the quarter by $1.8B, versus going down $18.3 billion in Q4. That contributed 0.81% to Q1 GDP, and without it, the Q would have been negative.

courtesy of Barron's Econoday

Previously:

GDP, Inflation & Recession
http://bigpicture.typepad.com/comments/2008/04/gdp-inflation-r.html

Source:
GROSS DOMESTIC PRODUCT: FIRST QUARTER 2008
GDP, April 30, 2008
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

GDP, Inflation & Recession

Wednesday, April 30, 2008 | 07:10 AM

in Data Analysis | Economy | Inflation

Why do I spend as much time as I do debunking inflation, employment and housing data? Today, you will see precisely why.

At 8:30am, we get the advance GDP data from BEA. Consensus is for a marginally positive data point -- 0.3%. This will follow Q7 2007 of 0.6%.

In terms of debunking the misleading data stats, today is the day where the rubber meets the road. Why? Well, if the official inflation data was reported in a way that was more reflective of reality, Q4 last year would likely have been anywhere from 0.75% to 1.5% lower (if not more), sending it into negative territory.

The same will be true for today's GD data point, with the probable overstatement enough to keep it marginally positive or flat.

Why does inflation matter so much to GDP? Gross Domestic Product (GDP) is the "broadest measure of aggregate economic activity and encompasses every sector of the economy." If you want to know understand how weak or strong an economy is, GDP is where you begin. But, you need to determine how much of GDP is nominal, and how much is real (i.e., after inflation growth).

Consider an economy that sold $100 worth of goods and services in one quarter. The next Q, it produced $110 worth. When determining the GDP of this economy, you want to know how much of those gains was additional output, and how much merely price increases. Its usually a combination of more widgets and higher prices, so if you want to know exactly how much the economy expanded, you need to know exactly how much inflation there was. Understate inflation, and you overstate growth.

If today's GDP is marginally positive, following Q4's marginally positive GDP data, then we officially will not be in a recession by the classic "2 consecutive quarters of negative GDP growth." This means that if the correct inflation deflator was built into GDP, we would have our two consec quarters.

Hence, for the reality based community, the recession will be officially here.

Of course, if you believe that actual inflation is running about 2.5%, then you should feel free to ignore this analysis.

Video: Bear Stearns Bailout "Worst Fed Mistake in a Generation"

Wednesday, April 30, 2008 | 03:30 AM

in Derivatives | Federal Reserve | Financial Press | Video

On Monday, I pointed to a WSJ article, regarding the Fed's past head of monetary affairs comments on moves to prop up Bear Stearns. (Bear Stearns Bailout "Worst Fed Mistake in a Generation")

Here is the video that was the basis of that article:
click for video, then select Reinhart from list

Previously:
Bear Stearns Bailout "Worst Fed Mistake in a Generation"
http://bigpicture.typepad.com/comments/2008/04/bear-stearns-ba.html

Sources:
What Lies Beyond the Credit Crunch? Part II
AEI, April 28, 2008 2:00 PM
http://www.aei.org/events/eventID.1712,filter.all/event_detail.asp#

Our Overextended Fed
Vincent R. Reinhart
Wall Street Journal, Wednesday, March 26, 2008
http://www.aei.org/docLib/20080428_ReinhartOurOverextendedFed.pdf

Business Video

Tuesday, April 29, 2008 | 08:30 PM

in Television | Video

You may have noticed that I run a bit of video a few days a week on the site, usually overnight.

As part of the redesign, I am setting up a tab for Video (hence, the slow loading video won't impact the main page). As such, I have been compiling a list of Business-related Video for the update, and this is what I came up with.

(Have I missed anything significant?)

Video Reports:

Financial Times (FT)
http://www.ft.com/multimedia

Bloomberg
http://www.bloomberg.com/news/av/

WSJ
http://online.wsj.com/video

Economist
http://audiovideo.economist.com/

CNBC
http://www.cnbc.com/?id=15839263&tabid=15839798&tabheader=false&t=0.9244770663790405

Business of Innovation
http://innovation.cnbc.com/en

Forbes
http://www.forbes.com/video/

The Street.com
http://www.thestreet.com/video/index.html

Barron's
http://online.barrons.com/public/main?mod=DNH_WSJ#

Marketwatch
http://www.marketwatch.com/tvradio/bcPlayer.asp

Yahoo Finance Tech Ticker TV
http://finance.yahoo.com/tech-ticker

CNN Money
http://money.cnn.com/video/

New York Times
http://video.on.nytimes.com/index.jsp

BBC tv
http://news.bbc.co.uk/2/hi/video_and_audio/default.stm

Fox Business
http://www.foxbusiness.com/

PBS
http://www.pbs.org/nbr/info/video.html

60 Minutes
http://www.cbsnews.com/sections/60minutes/main3415.shtml

CNET Video
http://www.cnettv.com/

Wallstrip
http://www.wallstrip.com/

Media Appearance: CNN Money (04/29/08)

Tuesday, April 29, 2008 | 05:48 PM

in Inflation | Media

I am on CNN Money - Glenn Beck's show tonite, discussing Inflation Ex-Inflation, and the dubious way the government creates CPI.

I should be on the half hour at 7:30, 9:30, and 12:30.

UPDATE: April 29, 2008 8:30pm

That was pretty cool -- I got to discuss how misleading the CPI data is, show charts of the various CPI-lowering adjustments, and speak uninterrupted.

Beck definitely gets that the whole system is full of crap thing.

You folks in comments should watch to see if you think the appearance was worth it. (I'll post it as soon as CNN makes the video available)

Inflation Abounds

Tuesday, April 29, 2008 | 01:00 PM

in Federal Reserve | Inflation

The Federal Reserve is now in day 1 of their two day meeting. The statement we get tomorrow, and the minutes we will read next month are likely to be intriguing.

Why? The longstanding official myth that inflation is modest, and contained is starting to be recognized for the fraud that it is.

Examples abound: The Times of London: Food-price inflation has already pushed up a typical family’s weekly shopping bill by 15 per cent in a year (Era of cheap food ends as prices surge). Yet here in the US, the BLS has food prices up only 4.5% year over year (that's with the dollar down ~2% vs. the pound)

The price of rice has increased dramatically in recent weeks due to crop failure overseas and resulting hoarding… Rice has doubled in price in six months. (Bay Area Shoppers Asked To Limit Rice Purchases)

During the first week of April…leisure fares from traditional carriers on 280 major routes rose 13
percent from the previous year...We've got an industry that's in trouble," said Vaughn Cordle, chief
executive and chief analyst at AirlineForecasts in Washington. "If oil prices stay anywhere near $100,
$120 for the year ... we'll have a massive restructuring of the airline industry." (Summer travel headaches loom as airlines' woes deepen).

All these obvious price increases are begining to undermine confidence int he Federal Reserve. We see article like this one in the San Diego Union-Tribune: The Fed's inflation gauge isn't realistic, critics say and this one in Harpers: "Numbers Racket: Why the Economy is Worse than We know."

Previously
Is the Fed Causing a Global Food Crisis? http://bigpicture.typepad.com/comments/2008/04/is-the-fed-caus.html

Sources:
Era of cheap food ends as prices surge
Steve Hawkes, Greg Hurst and Valerie Elliott
Times Online, April 23, 2008
http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article3799327.ece

Moms' new battle: The food price bulge
Parija B. Kavilanz,
CNNMoney.com, April 21, 2008: 10:33 AM EDT
http://money.cnn.com/2008/04/21/news/economy/moms_foodshopping/index.htm

The Fed's inflation gauge isn't realistic, critics say
Dean Calbreath
San Diego UNION-TRIBUNE, April 17, 2008 http://www.signonsandiego.com/news/business/20080417-9999-1n17inflate.html

Home Prices Fall 12.7%

Tuesday, April 29, 2008 | 10:06 AM

in Data Analysis | Real Estate

Declines in the prices of existing single family homes across the United States worsened in February 2008, with 17 of the 20 now reporting record low annual declines -- 10 of the 20 regions were in
double-digits:

"There is no sign of a bottom in the numbers. Prices of single family homes continue to drop across the nation. All 20 metro areas were in the red for the February-over-January reading. In addition, 19 of the 20 MSAs are still reporting negative annual returns. The monthly data show that every one of the MSAs has now declined" --David M. Blitzer, Chairman of the Index Committee at Standard & Poor's.

S&P/Case-Shiller Home Price Indices

Chart courtesy of S&P

S&P/Case-Shiller Index - February 2008 Table Sp_caseshiller_index_february_200_2

Table courtesy of TFS Derivatives

UPDATE: April 29 2008 11:58am

Tim Iacono posts this lovely charts:

Sources:
Steep Declines in Home Prices Continued
S&P, April 29, 2008
http://www2.standardandpoors.com/spf/pdf/index/CS_HomePrice_Release_042952.pdf

S&P/Case-Shiller Index Release - February 2008
TFS Derivatives, April 29, 2008
http://www.tfsbrokers.com/products.html

Bear Markets Seduce Investors

Tuesday, April 29, 2008 | 07:22 AM

in Markets | Psychology/Sentiment | Technical Analysis | Valuation

One of the astute comments recently from Paul Desmond of Lowry's was that "Bear markets seduce investors to keep buying stocks."

Most investors do not study market history, but if they did, they would learn that the financial wreckage of the great crash of 1929 was not from that year, but rather, the bottom fishing in 1931 and 1932 ~~and 1933~~. Bottom fishing is the killer.

Consider this discussion of similar bottom fishing, only this time, in a specific sector: Financials:

The credit crunch, despite the strenuous exertions of Bernanke & Co, shows little sign of easing, much less ending. Yet, financial shares have risen from the grave and are enjoying a dandy whirl. As Stephanie Pomboy, the perspicacious proprietor of MacroMavens, points out, this pop amid dauntingly ugly corporate reports by the banks and the rest of the financial gang is something we've seen before, and often.

"Since the wheels first started falling off last summer," she relates, "the financials have posted no fewer than 12 rallies of 5% or more.... It bears note that none of these stints, separate or combined, have precluded the financial sector from shedding 28% over the stretch."

Maybe 13 will prove the lucky number. Stephanie, though, sounds more than a bit skeptical, and so are we. At some point, we suspect, investors are going to sober up and stop popping the cork to celebrate the latest lender to take a multibillion-dollar bath.

Amazing -- 12 rallies of 5%+, and the sector is down 28% from when the Fed began cutting.

S&P500 Financial Sector

Source:
Great Expectations
ALAN ABELSON
MONDAY, APRIL 28, 2008
UP AND DOWN WALL STREET
http://online.barrons.com/article/SB120916362804146087.html

KBH: Home Prices May Drop Another 20%

Tuesday, April 29, 2008 | 04:28 AM

in Real Estate | Video

“I don't think we're anywhere near a bottom in housing”

click for video

courtesy of Bloomberg

Excerpt:

Eli Broad, a philanthropist and co- founder of KB Home, the fifth-largest U.S. homebuilder by revenue, said he expects home prices to drop another 20 percent.

"I don't think we're anywhere near a bottom in housing,'' Broad told Bloomberg TV at the Milken Institute Conference in Beverly Hills, California. "We're going to have a big inventory of unsold, unoccupied homes that's going to take three or four years to clear out.''

Homebuilders, hurt by banks' stricter requirements for granting home loans and concern over the rising number of homeowners failing to pay their mortgages, have begun work on the fewest number of houses since 1991, according to the U.S. Department of Commerce."

Source:
KB Home's Broad Says Home Prices May Drop Another 20%
Rhonda Schaffler and Bob Ivry
Bloomberg, April 28 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNGtHO1tbzng

Creating Fake Alpha

Monday, April 28, 2008 | 08:00 PM

in Corporate Management | Derivatives | Wages & Income

Saturday's discussion about the UBS report, including the post on banker's compensation, led to some intriguing email from people who must remain nameless because of their professional affiliations.

Included amongst the feedback was the phrase "Creating Fake Alpha," which I had first read in John Cassidy's Portfolio column earlier this month, titled The Banker's Bailout:

"Then there is the central and controversial issue of how to pay people who work for financial firms. In blowup after blowup, compensation schemes based on short-term performance have encouraged traders, division heads, and C.E.O.’s to act recklessly.

In the typical case, a trader or executive places a bet that pays off immediately—or soon enough to increase the individual’s bonus or stock-options value—but exposes the firm to long-term dangers.

Examples include Merrill’s decision to step up its production of mortgage securities just as the outlook for the real estate market darkened and Bear’s refusal to keep an adequate reserve of cash on hand. Earlier this year, Raghuram Rajan, a former chief economist at the International Monetary Fund, referred to such behavior as “creating fake alpha—appearing to create excess returns but in fact taking on hidden risks.”

One possible solution to this is to "force traders and senior executives to take a more long-term view." And the way you accomplish that is simple: Pay the traders and risk managers in stock or options that don’t vest for five or 10 years.

Perhaps when we look back at this era from a future vantage point, we will see that this was the last great era of finance (see today's WSJ: Is Finance's Economic Role Ebbing?).

I wonder if the bankers and financial engineers responsible for creating the subprime meltdown and the credit crunch may have finally killed the goose that laid the golden eggs . . .

~~~

What say ye?

Previously:
UBS $37B Write Down, Part II: Compensation
http://bigpicture.typepad.com/comments/2008/04/ubs-37b-write-d.html

Sources:
Analyzing Bear Stearns' Bailout
John Cassidy
Portfolio, Apr 14 2008
http://www.portfolio.com/views/columns/economics/2008/04/14/Analyzing-Bear-Stearns-Bailout

Is Finance's Economic Role Ebbing?
Sector May Make Up Smaller Part of GDP as Jobs Are Being Cut
JUSTIN LAHART
WSJ, April 28, 2008
http://online.wsj.com/article/SB120933096635747945.html

Related:
Switching boats in midstream to ride out credit storm
John Dizard
FT, August 14 2007 03:00
http://www.ft.com/cms/s/0/0739ecac-49fe-11dc-9ffe-0000779fd2ac.html

Bankers’ pay is deeply flawed
Raghuram Rajan
FT, January 8 2008 18:04
http://www.ft.com/cms/s/0/18895dea-be06-11dc-8bc9-0000779fd2ac.html

Bear Stearns Bailout "Worst Fed Mistake in a Generation"

Monday, April 28, 2008 | 05:00 PM

in Federal Reserve | M&A

Here's a glimpse at what must have been a fascinating discussion:

"The Federal Reserve's moves to prop up Bear Stearns Cos. will come to be seen as "the worst policy mistake in a generation," the Fed's past head of monetary affairs said. The action is comparable to "the great contraction" of the 1930s and "the great inflation" of the 1970s, said Vincent Reinhart, a scholar at the American Enterprise Institute, who retired from the Fed last fall.

Mr. Reinhart's assessment, delivered at a panel discussion at the institute Monday, is one of the harshest appraisals yet by a high-profile observer of the Fed's decision in mid-March to lend money to Bear both as temporary funding to make a merger possible, and then to finance $29 billion of Bear's assets to make its takeover by J.P. Morgan Chase & Co. possible."

I'd love to get a recording or transcript of the speech. Any one have access?

Source:
Ex-Fed Official Declares Bear Deal Worst Mistake in a Generation
GREG IP
April 28, 2008 4:10 p.m.
http://online.wsj.com/article/SB120941300416350473.html

Read It Here First: "De-Financializing" the WSJ

Monday, April 28, 2008 | 03:45 PM

in Financial Press

Last week, we noted that the new WSJ under Rupert Murdoch was being "De-Financialized;" that the coverage was becoming less business and money oriented, and more of a general interest paper -- kinda like what the Washington Post and the New York Times already do.

A rather similar sentiment was expressed in David Carr's column today:

"There is certainly no evidence that Mr. Murdoch has turned the newspaper into a tool of his business or political interests — something that had been widely feared and predicted. But there are clear signs that a sui generis business paper is fast becoming a very common general-interest paper, albeit one with a really dynamite business section.

Further changes were unveiled last week, but they seemed to reflect a broader range of stated interests without any additional staff or expertise. The Project for Excellence in Journalism completed a content survey last week and found that the newspaper’s front-page coverage of politics had tripled and that front-page coverage of business had been cut in half."

Interesting stuff . . .

Previously:
Murdoch's WSJ Changes Creates Opening for NYT, FT (April 2008) http://bigpicture.typepad.com/comments/2008/04/murdochs-wsj-cr.html

Source:
At Journal, the Words Not Spoken
DAVID CARR
NYT, April 28, 2008
http://www.nytimes.com/2008/04/28/business/media/28carr.html

Recessions Impact on NYC vs USA

Monday, April 28, 2008 | 01:00 PM

in Economy | Employment

No surprise here:

"If the last two recessions are any guide, economists say, the city could be headed into a wrenching reversal that will last longer than the national downturn. Though by many measures the city’s economy is still chugging along even as the nation’s sputters, there are troubling signs: Business-tax revenues and the number of building permits are dropping while unemployment and office space availability are creeping up.

Perhaps most important, big investment banks continue to report losses on securities tied to mortgages, causing the elimination of thousands of high-paying jobs on Wall Street, with many more layoffs in the works."

Pretty much what you would expect, and it shows up in the charts:

The last two recessions hit NYC harder and lasted longer than the rest of the country.

Graphic courtesy NYT

Source:
History Hints a Recession Would Hit City Hard
PATRICK McGEEHAN
NYT, April 28, 2008
http://www.nytimes.com/2008/04/28/nyregion/28york.html

Many States Are "In Recession"

Monday, April 28, 2008 | 10:58 AM

in Economy | Taxes and Policy

Last week, we looked at Trimtab's erroneous read of Federal Withholding Taxes.

This week, let's take a look at how the States and Local governments are doing with their tax base. Let's start with a chart of non-Federal deficits, as highlighted this April 15th in The Gartman Letter:

>
STATE AND LOCAL BUDGET DEFICITS
Billions, 1965 - Present

Chart courtesy of Stephanie Pomboy, MacroMavens.

The chart above shows a steady deterioration in the balance sheets of the states and cities of the US since the late '90's. Dennis Gartman notes that "Cities and states cannot run budget deficits without issuing revenue anticipation notes and the like to try to balance their budgets, and for a time those stop-gap measures will work... with the operative words here being "for a time."

As consumers spend less, the decrease in economic activity is leading many individual states to have their own recessions:

"The finances of many states have deteriorated so badly that they appear to be in a recession, regardless of whether that's true for the nation as a whole, a survey of all 50 state fiscal directors concludes.

The situation looks even worse for the fiscal year that begins July 1 in most states.

"Whether or not the national economy is in recession — a subject of ongoing debate — is almost beside the point for some states," said the report to be released Friday by the National Conference of State Legislatures.

The weakening economy is hitting tax revenue in a number of ways: People's discretionary income is being gobbled up by higher food and fuel costs, while the tanking housing market means people are spending less on furniture and appliances associated with buying a house."

One last note: Preliminary Q1 GDP data gets released on Wednesday . . .

Graphic courtesy of AP

Previously:
Trimtabs Continues to Abuse Withholding Data http://bigpicture.typepad.com/comments/2008/04/trimtabs-contin.html

Sources:
U.S. States `Deteriorating' Amid Slump, Lawmakers Say
William Selway
Bloomberg, April 25 2008
http://www.bloomberg.com/apps/news?pid=20601103&sid=aynsFLOt6jWE&

Many states appear to be in recession as deficits grow
ANDREW WELSH-HUGGINS
Associated Press Apr 25, 8:17 AM EDT
http://tinyurl.com/69wjfv

Professional Money Managers Are Bullish

Monday, April 28, 2008 | 06:54 AM

in Economy | Markets | Psychology/Sentiment | Valuation

Barron's does a regular "Big Money poll" with domestic portfolio managers. Their most recent survey is the cover story for this week's mag.

What's the state of the professional fund manager's psyche? Bullish!

Consider these numbers:

50% consider themselves "Bullish (43%) or Very Bullish (7%)"
12% consider themselves "Bearish (12%) or Very Bearish (0%)"
38% consider themselves "Neutral"

Most pros are "looking over the valley" to an economic recovery: 74% believe the US is in a recession, but only 32% believe this will lead to a world wide recession.

As to the state of the stock market, according to the managers, it is cheap: 55% believe it is undervalued, while only 10% think it is overvalued (35% chose fairly valued).

The greatest risks to equities was surprising: It was not, according to the managers, disappointing earnings (10%) or higher interest rates (9%) or a recession (6%) or even hedge funds (6%) -- rather, it was continued credit market dysfunction (56%).

Lastly, 87% plan on being buyers of equities over the next 3 - 6 months; Only 13% said they expect to be sellers. Most are exposed to large cap (64%) versus midcaps (19%) and small caps (15%).

Here's a quick excerpt:

"JUST AS MOST MANAGERS are sanguine about stocks, they're optimistic about the U.S. economy's growth potential later this year.

Like legendary investor Warren Buffett, nearly three-fourths of our respondents think that we're already in a recession, even if the official numbers won't provide confirmation for months. Asked to predict the change in gross domestic product this year and next, the managers offered growth forecasts of 1.16% in 2008 and 2.11% in '09.

Nearly 68% of poll participants are quick to dismiss the notion that a U.S. recession would drag down the rest of the world. "Slowdown from a torrid pace? Yes. Recession? No," quipped one investment pro, while another noted that "the infrastructure build-out around the world should maintain a certain non-recessionary level of growth."

Others don't buy the notion of a neat "decoupling." "The U.S. economy is 27% of global GDP," wrote one manager. "It would be next to impossible for developing economies, which represent another 29% of global GDP, to overcome a slowdown in the U.S. and Europe."

The one thing that would make the survey much more valuable would be the history of the survey results. Plot that against the SPX for a few decades, and you might have a very useful tool for sentiment analysis.

~~~

One small caveat -- most survey respondents are liars: 74% claim to be beating the S&P500. An alternative explanation is that primarily the outperformers responded to the survey.

click for larger graphic

Table courtesy of Barron's

Source:
Back in the Pool
JACK WILLOUGHBY
BARRON'S, APRIL 28, 2008
http://online.barrons.com/article/SB120916344041346031.html

Rhodes of Citigroup Says Credit Crisis `Half Way' Over

Monday, April 28, 2008 | 04:30 AM

in Credit | Derivatives | Video

click for video

William Rhodes, vice chairman of Citigroup about the outlook for the U.S. economy and financial markets, trade policy and his expectations for China's growth.

Source:
Rhodes of Citigroup Says Credit Crisis `Half Way' Over
Kathleen Hays
Bloomberg April 25 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avGIXeWKBadQ

Cognitive Surplus

Sunday, April 27, 2008 | 07:30 PM

in Psychology/Sentiment | Television | Web/Tech

NYU Professor Clay Shirky asks, "What are you doing with your Cognitive Surplus?"

"I was being interviewed by a TV producer to see whether I should be on their show, and she asked me, "What are you seeing out there that's interesting?"

I started telling her about the Wikipedia article on Pluto. You may remember that Pluto got kicked out of the planet club a couple of years ago, so all of a sudden there was all of this activity on Wikipedia. The talk pages light up, people are editing the article like mad, and the whole community is in an ruckus--"How should we characterize this change in Pluto's status?" And a little bit at a time they move the article--fighting offstage all the while--from, "Pluto is the ninth planet," to "Pluto is an odd-shaped rock with an odd-shaped orbit at the edge of the solar system."

So I tell her all this stuff, and I think, "Okay, we're going to have a conversation about authority or social construction or whatever." That wasn't her question. She heard this story and she shook her head and said, "Where do people find the time?" That was her question. And I just kind of snapped. And I said, "No one who works in TV gets to ask that question. You know where the time comes from. It comes from the cognitive surplus you've been masking for 50 years."

So how big is that surplus? So if you take Wikipedia as a kind of unit, all of Wikipedia, the whole project--every page, every edit, every talk page, every line of code, in every language that Wikipedia exists in--that represents something like the cumulation of 100 million hours of human thought. I worked this out with Martin Wattenberg at IBM; it's a back-of-the-envelope calculation, but it's the right order of magnitude, about 100 million hours of thought.

And television watching? Two hundred billion hours, in the U.S. alone, every year. Put another way, now that we have a unit, that's 2,000 Wikipedia projects a year spent watching television. Or put still another way, in the U.S., we spend 100 million hours every weekend, just watching the ads. This is a pretty big surplus. People asking, "Where do they find the time?" when they're looking at things like Wikipedia don't understand how tiny that entire project is, as a carve-out of this asset that's finally being dragged into what Tim calls an architecture of participation.

Now, the interesting thing about a surplus like that is that society doesn't know what to do with it at first--hence the gin, hence the sitcoms. Because if people knew what to do with a surplus with reference to the existing social institutions, then it wouldn't be a surplus, would it? It's precisely when no one has any idea how to deploy something that people have to start experimenting with it, in order for the surplus to get integrated, and the course of that integration can transform society.

The early phase for taking advantage of this cognitive surplus, the phase I think we're still in, is all special cases. The physics of participation is much more like the physics of weather than it is like the physics of gravity. We know all the forces that combine to make these kinds of things work: there's an interesting community over here, there's an interesting sharing model over there, those people are collaborating on open source software. But despite knowing the inputs, we can't predict the outputs yet because there's so much complexity."

Fascinating stuff . . .

Source:
Gin, Television, and Social Surplus
Clay Shirky
Web 2.0 conference, April 23, 2008 http://www.herecomeseverybody.org/2008/04/looking-for-the-mouse.html