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Still Different, but Showing Signs of Life

Thursday, July 31, 2003 | 10:51 AM

We’ve been fond of noting how different this economic cycle of recession and recovery has been. These discrepancies are particularly acute when comparing employment and productivity to prior cycles. We can add another factor to the list of historical differences: lackluster manufacturing activity. Now, we may be seeing signs of that sector finally waking up. The U.S. economy is showing “nascent signs of recovery in the manufacturing sector,” noted yesterday’s Fed Beige book. Add to that today’s 2Q Real GDP growth improving 2.4% (annual rate), with Capital spending up 6.9% (seasonally adjusted annual rate).

Is this the long awaited proof that the ailing manufacturing sector has finally begun to improve? It would be a welcome change. As the nearby chart illustrates, 18 months after the official end of the recession, Industrial Production remains anemic. Even the Fed noted “on balance, capital expenditures in the manufacturing sector remained weak.”

Any uptick in corporate spending is crucial to a sustainable recovery. It’s been quite apparent that the corporate sector, vis a vis the consumer and the government, has simply not been pulling its weight. The Feds have spending money as fast as they can, racking up record deficits in the process. Only the most vehement anti-Keynesian would object to deficit spending at this stage of the recovery. And, the Consumer continues to do their share, spending profligately, regardless of their ever increasing debt load.

What stands between us and a full-throated economic recovery is the legions of tight fisted corporate IT managers, CFOs, and budget committees who stubbornly refuse to believe their own CEO’s happy talk. Once these Scrooges start spreading their love, we expect consumer confidence to rise, employment to markedly improve, and tax receipts to climb. But they have to be willing to break open the “lock box” and start hiring and spending.

Those that do so may ultimately be rewarded. As Business Week recently noted, “a few gutsy companies think now is the time to grow.” Specifically mentioned were Washington Mutual, Intel, Verizon, Apple and Logitech as examples of firms “boosting spending on capital investments, research and development, and marketing. They're breaking into new markets, launching new products, and starting to think about deals. They're making acquisitions. They're even hiring . . .” Unfortunately, these firms are in the minority.

Sure, there is still too much excess capacity, little end user demand, and extremely limited pricing power. But sometimes, you just have to take one for the team.

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Industrial Production during Economic Expansions

Wednesday, July 30, 2003 | 11:37 AM

in Finance

post recession.gif
SOURCE: Chart of the Day

The average trend in industrial production during the first 24 months of every economic expansion from 1954 to 2000. For comparison, the chart also includes industrial production for the expansion that began in March 1991, as well as the current expansion that began in November 2001.

The chart shows the present anemic economic expansion. Chart of the Day notes that "industrial production is one of a handful of indicators that the NBER uses to date recessions and the overall trend has been down since July 2002."

This chart provokes thinking along two specific lines: First, this recovery is one of the most feeble post recessionary periods we've seen since WWII. Secondly, from a broader perspective, it confirms the overall trend of the country's economic base moving away from manufacturing and towards service oriented businesses. (See Not-so-Random Items below for a variety of articles on this topic).

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Terror Futures Market

Wednesday, July 30, 2003 | 10:07 AM

in Current Affairs | Finance

Quote of the Day

“When I saw that article the other day about a market being established to bet on the probability of wars, terrorist attacks and assassinations, I dissed it completely out of hand as nonsense, incredible nonsense. All I could think of was what the blotter would look like. Let’s see. I’m short the Osama Bin Laden December ’04 calls, long 2 ambassadors to Middle East countries and have an Iraq/Iran swap on. I’m also considering some North Korea nuclear incident converts, but they’ve gotten away from me lately. “Get me a look at the East Coast Tunnels and Bridges puts, will you?”
Huh? It just could not be true. Nobody is that warped. Well, evidently, they are. Big time."

--an anonymous Bear Stearns analyst on the proposed Terror Futures Market (policyanalysismarket.org)

Top Line Versus Bottom Line Growth

Tuesday, July 29, 2003 | 01:47 PM

in Finance

With two thirds of the S&P500 and DJIA companies reporting earnings – and 66% reporting upside surprises – we thought it an opportune time to review what is driving the overall numbers. For many companies, there seems to be unsustainable factors helping them hit their targets. Is the glass half empty as the Bears are claiming, or is it half full, and sustainably so, as the Bulls have said?

Last quarter (Q1 2003), the SPX benefited from the dramatic one-time gains from the energy sector. A whopping 180% earning’s growth was tied to a short lived war-caused spike in the price of crude. Energy revenue grew 46%, versus expectations of 12% gains for Q2 ‘03.

One-offs are also seen helping other sectors this quarter. Manufacturing and Cyclical firms are reaping the benefits of the weak dollar as favorable currency translations have been helping those companies beat their numbers (see CAT, UTX, DOW, and DD). Finance firms have also benefited from events which may not be sustainable: The rally caused a spike in trading, helping both online brokers and traditional asset managers alike; Ultra low interest rates benefited banks, credit card issuers and mortgage lenders. In our opinion, if rates continue moving back towards historical norms, banks and traders will be hurt on both the top and bottom lines.

But the Bulls have some positives on their side. Barron’s reported that “Nasdaq short interest rose to another record in July, representing the reservoir of skepticism that keeps building.” That’s the wall of worry the market needs to climb. Barron’s also notes that “just-reported figures show the biggest drop in NYSE short-interest in a year.”

What we infer from this is that short interest – just like stocks – goes through its own form of rotation. Earlier in this rally, we saw evidence of market neutral players putting on a Nasdaq vs. SPX paired trade: Long hi beta momentum/lousy fundamental Nasdaq names, Short stodgy cyclicals with improving fundamentals.

That trade may be unwinding now. With signs of the economy improving, and the Nasdaq quite pricey, we may even see the trade reverse. The new paired trade is long cyclicals, short Nasdaq. That could give quality names a chance to catch up with the pricey runners which may be overdue for a pullback anyway.

Gradually improving economic fundamentals, and more attractive valuations support this rotation. Holders of expensive Nasdaq names are urged to tighten stops, and look towards quality SPX names for the next leg up.

Chart of the Week
The Dow Industrial Average has consolidated into an ascending triangle. We should expect continued consolidation within the 500 point trading range between 8950 and 9450.

6 Month Dow Industrials Average Chart
DJIA Chart.jpg
Source: Arms Advisory
A breakout above the top of the triangle bodes well for a measured move to about 10,100.

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Quote of the Day: “Is it so bad, then, to be misunderstood? Pythagoras was misunderstood, and Socrates, and Jesus, and Luther, and Copernicus, and Galileo, and Newton, and every pure and wise spirit that ever took flesh. To be great is to be misunderstood.”
-Ralph Waldo Emerson

The Danger of Dogma

Sunday, July 27, 2003 | 08:00 AM

in Current Affairs | Finance | Politics

There is an enormous intellectual danger in reaching a conclusion, and then working backwards from that point to justify that point. To wit, Professor Michael J. Boskin, an economist at Stanford, who claimed to have discovered a future cash horde of 12 trillion dollars that the government had somehow "overlooked."

Once the retiring Baby Boomers, "who spent decades making tax-free contributions to their I.R.A.'s and 401(k) plans" began paying taxes on those accounts, the windfall would save the government's future shortfall in Social Security and Medicare.

Or so Professor Boskin thought. But alas, his financial alchemy failed to turn dross into gold. It seems his assumptions for the returns were way too optimistic (sound familiar?). He also double-counted tax assets already on the Federal Government's books. And, he failed to consider that by the time the withdrawals would occur, the recipients would be in a much lower tax bracket. (Duh)

You must give credit to Professor Michael J. Boskin for identifying the error and making what must have been an unpleasant and embarrassing mea culpa. Also, credit the system of peer review, which almost instantly challenged his faulty assumptions, analysis and conclusions.

But recognize what was the underlying cause of the gaffe: Lack of objectivity; Biased research turns out not really to be research after all; It is a process of rationalization, as opposed to original thinking. This does not lend itself to finding scientific truths.

How difficult is economic forecasting? Its called the "Dismal Science" when its practiced by competent statisticians who operate without bias. That intellectually honest adherents working on behalf of large investment pools -- i.e., people with a good incentive to get it right regardless of the outcome -- find it exceedingly difficult to make accurate predictions. Call it the "folly of forecasting."

For those who slavishly adhere to a dogmatic yet faulty belief system, there's a different word for them and their mystical incantations: Propagandists.

NYT: It Looked Good on Paper

EXCERPT:

About six months ago, Professor Boskin, an economist at Stanford who was chairman of the Council of Economic Advisers under the first President George Bush, released a paper suggesting that the federal government had a bounty of $12 trillion coming that no one had bothered to count.

Baby boomers and others, who spent decades making tax-free contributions to their I.R.A.'s and 401(k) plans, would soon begin paying taxes on withdrawals from those accounts, Professor Boskin noted. The windfall from all that, he argued, would more than cover the deficits in Social Security and Medicare.

But now it appears that Professor Boskin fired a blank. On July 17, after his ideas were discussed on TV, he quietly notified his colleagues that his equations contained an error. Though he is busily overhauling his paper even now, his latest moment of fame may have already passed.

Download "It Looked Good on Paper" NYT pdf

Impatience at the Federal Reserve: The New Productivity Paradox and Fed Monetary Activism

Saturday, July 26, 2003 | 09:52 AM

in Current Affairs | Finance | Politics

Special Report: FOMC Meeting June 25, 2003

IntroductionOn June 25, 2003, the Federal Reserve announced they were cutting rates by 25 basis points; This 13th and (possibly) final cut was the most telegraphed easing since this rate cutting cycle began on March 20th, 2001.

Of the past 13 eases, today’s is the most difficult to justify, at least on a purely economic basis. Since the war in Iraq ended, consumer confidence has rebounded, retailing has improved and oil prices have come down. The Wall Street Journal noted that “Corporate bond issuance is booming, and mortgage-refinancing applications exceed the capacity available to handle them. Total commercial bank assets have climbed by 11% in the past year and bank profits have soared – a clear sign that the financial system is not starved of liquidity . . . Purchasing managers' indices are rising, deal-flow is improving again on Wall Street, corporate bond spreads have narrowed sharply, and the stock market is up.”

All this begs the question: Was this cut necessary? Considering the tax cuts, already low interest rates, weak dollar and increases in money supply, “putting an exclamation mark” on the end of this rate cutting cycle hardly seems necessary.

Our curiosity has gotten the better of us: What is it that is motivating the Fed?

Jobless Recovery?
The most obvious weakness in the economic rebound has been the employment picture. This has been a mostly jobless recovery, with unemployment still over 6.1%. The jobless numbers have stubbornly stayed over 400,000. Nine million people were unemployed in May, compared with 8.8 million in April.

Yet the Federal Reserve’s impatience with the employment picture is puzzling. The labor market is a lagging indicator; It’s usually the last part of the economy to show marked improvement in any recovery. “As long as employment doesn't collapse, the recovery will continue to gain strength. As it does, slowly jobs will be added and they will be the fuel that kicks the economy into a higher gear,” observed Bill Cheney, chief economist at John Hancock Financial Services in a CNN interview.

We agree. The Fed’s impatience is an enigma. Unless the system receives another external shock (i.e., war or terrorist attack), it’s reasonable to expect a slow but continuing recovery. Indeed, the possibility of a “shock event” is itself reason to keep some powder dry, just to be able to determinedly respond if such an untoward episode were to occur. This makes today’s cut all the more intriguing.

The New Productivity Paradox
In 1987, Nobel laureate Robert Solow famously observed: “You can see the computer age everywhere but in the productivity statistics.” Despite massive investment in IT infrastructure, productivity growth was nonexistent. At the time, this was known as the “Productivity Paradox.”

It’s not too difficult to see why productivity increases remained so elusive during that era. In 1987, PCs were klunky and awkward to use; Command codes via DOS were not the path to improved worker efficiency. As companies struggled to incorporate PCs into their workflow, they upset existing efficient routines. Firms had to create new infrastructures, hire consultants, and add IT staff. The subsequent integration was both painful and costly.

Productivity Spike in late ‘90s
Starting in 1995, non-farm worker productivity doubled. Looking back from our present vantage point, it’s easy to see the how a few incremental improvements added up to a massive increase. By 1995, most office applications had become standardized. New hires no longer had to learn a unique set of tools. The learning curve for existing workers dramatically flattened. With the introduction of Windows 95, DOS became buried under a graphical user interface (GUI). The tools themselves were getting better and easier to use.

Additionally, new workers had grown up using PCs; They required little if any formal training. Using computers was not a learned skill to these new hires; For new employees from the “Class of 1995” onwards, the PC was a tool internalized as much the telephone or pen and paper. Standardization – plus these new, highly computer literate workers – helped boost productivity dramatically.

Thus, the Productivity Paradox appeared to have been solved. Growth of U.S. productivity surged on an annual basis. Since 1995, labor force productivity has been increasing at an annual rate double that of the previous two decades. This “productivity feast” (as its been called by Greenspan) is the largest increase in non-farm business output per hour in 30 years.

Since 1995, Productivity has been increasing on an annual basis of about 2.25% per year. At the same time, the labor force itself has been growing at 1% per year.

That simple math of 1% + 2.25% lies at the heart of the “new Productivity Paradox:” As long as productivity continues to increase year after year at the present rate, the traditional notion of 3% GDP creating jobs no longer applies. Real GDP must increase at the annual rate of at least 3.25% per year just for the economy not to lose any more jobs.

The conservative American Enterprise Institute (AEI) noted that “right now, we're in a ‘jobless recovery’ – the economy is growing, but so is unemployment. The reason is that productivity is increasing. If new technologies enable each worker to produce more, the economy can grow without increasing the number of jobs.”

This simple revelation engenders a host of issues not publicly addressed by the Fed Chief. During the boom times, Greenspan lauded productivity as the source of all that was right in the world. Productivity increases got the credit for a myriad of positives: increased living standards, higher corporate profitability, boosted tax revenues, and better funded pension plans. At the time, it seemed that the benefits of technological induced efficiencies knew no bounds.

The Dark Side of Productivity
Since the stock market bubble popped, the markets have been confronting the dark side of productivity: Companies now need less laborers to produce even more goods and services; On a macro-economic level, less workers means less consumer spending, lowered tax receipts and weaker corporate profitability. Firms have little pricing power; The National Review noted that “productivity stemming from technology advances and applications also creates inexorably downward price pressures. Technology breakthroughs make it a lot cheaper to produce commodities, finished goods, and all manner of services.”

This new Productivity Paradox has the potential to cause significant dislocations in the labor market – one that might not be as easily solved as the last major shift. When the nation changed from a mostly manufacturing to a primarily service economy, it caused similar dislocations. The response by displaced workers was to retrain themselves for employment in other sectors, using the new tools of the trade. That response – learning how to use new technological based productivity tools – will not work at present. Indeed, it’s what’s to blame for these new productivity issues.

The jobs being lost presently via enhanced productivity will not be so easily replaced. Unlike the last seismic shift, there is no new “new economy” on the horizon to absorb newly displaced workers.

In order to stem the tide, one of two things needs to occur: Either GDP must improve dramatically, or productivity gains must tail off, if not outright reverse. Indicators suggest GDP is on the upswing (see below); But if neither of these occur, the U.S. may not start creating jobs for the next few quarters – if not years. Indeed, any backslide in the economy would see job losses resume at a disturbing pace.

The New Monetary Activism
Its hard to call a 13th rate cut “new;” Its only within the framework of the present environment that what was once a gradualist form of intervention has morphed into something much more radical. The Fed has subtly changed from being “social rate cutters” into “problem interventionists.” I suspect they are thinking: “We can stop anytime we want . . .”

The weak but improving economy certainly doesn’t demand further cuts. Its not as if there’s been a “ground swell of complaints about high interest rates or tight money,” observed the Wall Street Journal. The American Enterprise Institute similarly noted that “GDP growth will rise to 4 percent and probably overshoot to 5 percent for one or two quarters in 2004, in a long-awaited, normal cyclical recovery pattern, on the way to sustainable growth of 3.5 to 4 percent.” With the economy on the mend, GDP should start creating jobs over the next 24 months. Today’s 1/4 point cut reveals more about the Fed’s impatience than it does about the state of the economy.

Graphic: CPI change (since 1987)

Nor does the recent Fed jawboning about deflation ring true. Some strategists have taken to referring to the specter of falling prices as “the deflation ghost.” None other than former Federal Reserve Chairman Paul Volcker addressed the subject earlier this week. Speaking Monday at a forum on the state of the global economy at the London School of Economics, Volcker commented “If I were setting odds on deflation in the U.S., the probability wouldn't reach 0.1 percent. I see no prospect of real deflation like we had in the U.S. and other countries in the 1930s.” The widely respected Volcker’s comments effectively repudiated deflation as a factor in making further rate cuts.

With both deflation and economic recovery eliminated as possible reasons, the question remains: What else is left? The biggest issue of concern is unemployment and/or the job creation rate. But, as the AEI noted, GDP should hit a sustainable job-creating rate of 3.5 - 4% by 2005.

With so little evidence in favor of today’s cut, Fed watchers are left to philosophically wonder “why.” As we have pointed out in earlier reports, the Fed seems to be newly impatient, more concerned with the timing of their impact than their actual impact on the economy.

The Fed’s role has apparently changed from “cushioning the pain in a downturn, towards creating a new expansion cycle.” This is a radical change.

The new objectives of monetary policy, as well as the methodologies employed, reflect a newly radicalized Fed: “This policy cycle can arguably be seen as revealing a more powerful and preemptive use of fiscal and monetary stimulus than any prior post-World War II cycle,” observed Michael Englund, chief economist for MMS International Analysts. In a recent Business Weekarticle, Englund further added, “much of the economic stimulus in the pipeline is only now taking effect, as yields on longer-dated securities have just recently pulled back a significant degree, and a big portion of the combined tax cuts of the last three years is expected to kick in during June and July. All this is occurring while "real" interest rates (as adjusted for inflation) have fallen from cyclically firm levels to historic lows that now reflect extraordinarily depressed nominal levels overall.”

Indeed, this radically new monetary activism – and its broad intervention in the markets – is now in uncharted waters. “We have an amount of stimulus beyond anything I've heard of in history” were the not so subtle observations of former Fed Chief Paul Volcker.

Relationship between the Productivity Paradox and Monetary Activism
The economy has reached the point in the cyclical recovery where the Fed’s considerable economic stimulus is finally having an impact. All manners of economic activity have shown a modest rebound. And, much of the stimulus is still “in the pipeline.”

The biggest laggard remains employment – historically, the last data point to see a rise in any economic recovery. As the excesses of the bubble get worked off, employment should see a gradual improvement. But this development will be a function of time, not monetary policy. Indeed, some have argued that the extremely cheap cost of capital allows companies to “hang around,” instead of weakening to the point where the normal consolidation processes can occur.

The combination of this excess capacity and increased productivity suggests that employment will continue to lag the broader recovery, only gradually rising when GDP growth finally tops 3.25%. Barring unforeseen circumstances, that’s not likely to occur until later this year at the earliest, and more likely sometime in 2004. But it should happen eventually.

Hence, the Fed’s impatience and monetary activism appears to be unusually tied to the calendar. Unwilling to allow their already substantial stimulus to gradually work its way into the system, the Fed has opted to engage on a surprisingly activist agenda.

The most obvious event in 2004 possibly motivating the Fed’s latest intervention is the Presidential election.

CONCLUSION: The Dangers of Excessive Intervention
The Fed’s impatience and their surprisingly activist stance raise several danger signals:

First, rates will not stay this low indefinitely. What the Fed giveth, they must ultimately taketh away – and then some. “As always, the end result of excessive ease by the Fed will be higher rates in the years ahead” noted Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson.

Secondly, the question of the Fed’s focus also is subject to criticism. “If the Fed is going to underscore its commitment to anything, it shouldn't be to an interest rate. It should be to macroeconomic stability, which doesn't include fostering another asset bubble. The U.S. is still recovering from the last one,” noted Bloomberg columnist Caroline Baum.

Finally, the consideration of the Fed’s activities as it relates to the Democratic process is yet another issue. We are not so naïve to believe that the Fed is totally insulated from politics; Indeed, Greenspan has shown himself to be a rather astute politician. (One does not get to be the Fed Chief without at least a passing understanding of what it means to be a player in DC). However, the Fed’s activist stance smacks of partisanship:

David Gilmore, an economist at Foreign Exchange Analytics, details the overtly political factors in the Fed Chief’s actions: “President Bush gave the aging Greenspan an unexpected, early reappointment as chairman.” With an election less than 18 months away, “Bush is betting his generosity will get Greenspan on track for stimulating the economy by all means necessary” (emphasis ours). Timing, apparently, is everything.

Aggressive market interventionism is invariably accompanied by unintended consequences. We suspect that – eventually – the result of the Fed’s impatience will be felt long after the present Fed Chief has retired

In the 1960s, then Federal Reserve Board Chairman William McChesney Martin made the famous quip that it was the Fed's job "to take away the punch bowl just when the party is getting going." Alan Greenspan tends the economic bar differently: He is freely offering drinks to the already inebriated; We should not be surprised by the consequences.

Sources:
Central Bank Talk: Does it Matter and Why?
http://www.federalreserve.gov/boarddocs/speeches/2003/20030620/paper.pdf

Unemployment rises to 6.1%
Mark Gongloff, CNN/Money Staff Writer, June 6, 2003
http://money.cnn.com/2003/06/06/news/economy/jobs/index.htm

Solving the paradox, September 21, 2000
http://www.economist.com/displayStory.cfm?Story_ID=375522

Remarks by Chairman Alan Greenspan on Productivity, October 23, 2002
U.S. Department of Labor and American Enterprise Institute Conference, Washington, D.C.
http://www.federalreserve.gov/boarddocs/speeches/2002/20021023/default.htm

Seeing Tax Cuts as Stimulating
William Schneider, AEI, May 21, 2003
http://www.aei.org/news/newsID.17226,filter./news_detail.asp

Alan’s Eye Is on the Ball
Larry Kudlow, National Review, May 15, 2002, 8:45 a.m.
http://www.nationalreview.com/kudlow/kudlow051502.asp

Just Say No to Rate Cuts
Brian S. Wesbury, WSJ, June 23, 2003
http://online.wsj.com/article/0,,SB105633638463789300,00.html

Threefold Stimulus Means Strong Growth
John H. Makin, Resident Scholar, AEI Online (Washington)
Publication Date: July 1, 2003 (Posted Tuesday, June 17, 2003)
http://www.aei.org/publications/pubID.17730/pub_detail.asp

After Iraq: the state of the world economy
London School of Economics
Monday 23 June, 3-6.30pm
http://www.lse.ac.uk/Press/currentPressReleases/Fernando_Cardoso_tospeakatLSE.htm

Is Easing the Answer?
Michael Englund, Business Week JUNE 24, 2003
http://www.businessweek.com/investor/content/jun2003/pi20030623_9505.htm

Markets Writhe Around FOMC Meeting
Bill Fleckenstein, RealMoney.com, 06/24/2003 05:13 PM EDT
http://www.thestreet.com/p/rmoney/marketrap/10096058_3.html

Rate Cut Looking Like a Sure Thing
By John M. Berry, Washington Post, June 19, 2003; Page E01
http://www.washingtonpost.com/wp-dyn/articles/A10948-2003Jun18.html?nav=hptop_tb

Keynesian Greenspan
RUCHIR SHARMA, Wall Street Journal, June 24, 2003
Morgan Stanley Investment Management
http://online.wsj.com/article/0,,SB105640278322642600,00.html

Productivity surges; 'new economy' lives
Ron Scherer | Christian Science Monitor | May 08, 2002
http://www.csmonitor.com/2002/0508/p02s02-usec.html

How Weak is the Economy, Really?
Brian Wesbury, Chief Economist, Griffin, Kubik, Stephens & Thompson, June 23, 2003
http://www.gkst.com/

Long-Term Rates Still Haven't Gotten the Joke
Caroline Baum, Bloomberg , June 24, 2003
http://www.bloomberg.com/news/commentary/cbaum.html

Alan Greenspan: A Wild And Crazy Guy
Lawrence B. Lindsey, AEI Online (Washington), September 14, 1999
http://www.aei.org/publications/pubID.10824/pub_detail.asp

Threefold Stimulus Means Strong Growth
John H. Makin, June 17, 2003
http://www.aei.org/publications/pubID.17730/pub_detail.asp

Seeing Tax Cuts as Stimulating
William Schneider, AEI, May 21, 2003
http://www.aei.org/news/newsID.17226,filter./news_detail.asp

The Conference Board
http://www.tcb-indicators.org/us/LatestReleases/

Rate Cut Looking Like a Sure Thing
John M. Berry, Washington Post, June 19, 2003; Page E01
http://www.washingtonpost.com/wp-dyn/articles/A10948-2003Jun18.html?nav=hptop_tb

Fed's Next Interest-Rate Cut May Be Smaller Than Expected
Greg Ip, Wall Street Journal, June 20, 2003; Page 1
http://online.wsj.com/article/0,,SB105606474353678900,00.html?mod=article-outset-box

50-Pointer the Way to Go
David Gilmore, RealMoney.com, 06/19/2003
http://www.thestreet.com/p/rmoney/thebuckstopswhererm/10095030.html

Unemployment and Inflation charts courtesy of Washington Post
http://www.washingtonpost.com/wp-srv/business/images/greenspan_080602.html

Fed Fund Futures
http://www.cbot.com/cbot/ir/page/0,2869,444,00.html

Do we really need a rate cut? http://money.cnn.com/2003/06/09/news/economy/cut_downside/index.htm

Growth in the Post-Bubble Economy
http://www.frbsf.org/publications/economics/letter/2003/el2003-17.pdf

Mortgage rates stop downward spiral
http://money.cnn.com/2003/06/19/pf/yourhome/q_weekly_rates/index.htm

Fed man's hand
http://money.cnn.com/2003/06/20/markets/sun_lookahead/index.htm

Original docs here:
Download Word Doc
Download PDF

Robotic Nation

Saturday, July 26, 2003 | 09:09 AM

in Current Affairs | Finance | Web/Tech

Marshall Brain has put up an absolutely fascinating -- and economically scary -- piece titled Robotic Nation. After experiencing a self serve McDoanlds kiosk, he extrapolates that experience to its logical conclusion.

In Marshall's view, (or at least one possible logical conclusion), the ultimate end result is a mass wave of displacement of Humans. He expects "we are about to see a seismic shift in the American workforce. As a nation, we have no way to understand or handle the level of unemployment that we will see in our economy over the next several decades. These kiosks and self-service systems are the beginning of the robotic revolution."

In addition to the many other factors I've identified keeping job creation down -- productivity enhancements, globalization, excess capacity left over from the popped bubble -- you can now add replacement of workers by robotic/PCs to the mix.

Back on June 19th, I discussed the issue of how productivity paradoxically (" New Productivity Paradox ") is working against job creation. Total human replacement could be the ultimate Productivity enhancer.

Marshall doesn't really go into all the jobs the robot producing industry will create; They will obviously be greatly fewer in numbers but higher paying than the millions of low paying jobs they will be displacing.

Barron's calls President Bush a liar

Saturday, July 26, 2003 | 06:57 AM

in Media | Politics

I was stunned to read this in Alan Abelson's column today in Barron's. With humor and a gentle touch, Abelson clucks about the unnecessary dissembling -- leading up to the war, on economic matters, and on "theatrics."

When the conservative financial media start calling the President to task for lying, it has potentially far reaching implications -- for economic planning, for foreign diplomatic relations, and of course, for electoral politics.

The Prevaricator

". . . You would think, of course, that to describe someone as a prevaricating politician would be redundant, if only because perennial practice should make perfect. But even if the truth-slayer survives exposure during his many years feeding at the public trough and passes on to that big, smoke-filled room in the sky, his reputation remains at risk. And history is a hanging judge.
Nor, alas, has this fair land proved immune to civil servants at the highest level employing smoke and mirrors to obscure the truth. For shining examples, you don't have to go back any further than Lyndon Johnson, Richard Nixon and -- need we add? -- the Pinocchio President, himself, Bill Clinton. Now, it emerges, a seemingly reflexive redactor, George W. Bush, is striving mightily to prove himself worthy of this equivocative company.

Unlike his immediate predecessor, whose impulse toward evasion was manifest long before Monica, Mr. Bush ostensibly displayed a refreshing preference for openness early in his tenancy at the White House. But that engaging quality has gradually given way to something more familiar and less admirable. In the run-up to Iraq, in the confusions that followed our triumphant rout of Hussein & Gang, in his blatantly theatrical landing on the aircraft carrier, and in the treatment of the report, released last week, on 9/11, he has too often let "image" and politics trump probity.

That same regrettable aversion to the truth and reality when the truth and reality aren't lovely or convenient have been glaringly in evidence on the economic front, as well. Mr. Bush didn't cause the recession or the dismal lack of vibrancy in the economy. He had absolutely zilch to do with the punctured bubble at the root of the current economic malaise . . .

. . . Not the least of the troubles with prevaricating, whether spousal or political, as the investment banker learned and the president's softening poll ratings demonstrate, is the obvious one: It inexorably diminishes credibility. It fosters suspicion even when there's no reason to be suspicious, as witness the refusal of the locals to believe that the Hussein brothers were gone for good.

The tendency to duck and weave, to elide what's discouraging and exaggerate what's hopeful, in no way, as noted, distinguishes Mr. Bush from many of the more than two-score men who occupied the presidency before he did. But more's the pity. Even for an incorrigible cynic like us, who believes staunchly that the only way to look at an office holder is down, it would have been a nice change."

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This bears watching closely . . .