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Recessions: A family affair?

Saturday, July 31, 2004 | 12:26 AM

When looking at a historic depiction of U.S. GDP over 20 years, its fairly hard to avoid noticing the business cycle. The lighter line showing the year over year change in the annual rate of GDP reveals fairly regular periodic oscillations:

                                      Real GDP growth, % change, annual rate
Graphic courtesy of Lombard Street Research

As these cyclical changes suggest, the broader business cycle of expansion and contraction beats (to a large degree) to it own internal rhythm. One would be hard pressed to find a 'headline cause' for each and every strengthening or weakening of the economy shown above. It is to a large degree organic.

Of course, there is a false conceit that the President largely controls the economy. I agree with other commentators who suggest that Presidents get too much credit for good economies, and too much blame for bad ones. At least, relative to what their marginal impact on the business cycle actually is.

So that makes the chart below even more ironic: How is it that two Presidents -- each named Bush -- managed to time their Presidencies to coincide with the 2 major economic recessions of the past 20 years:

                                                  Bush Recessions, 1990, 2001

Was it bad policies? Something genetic? Or just dumb luck? Regardless, one has to laugh at the sheer absurdity of the coincidence.

The chart above helps explain why the Bush administration is backpedalling so desperately to pre-date the 2001 Recession into 2000, attempting to put it firmly under the watch of the Clinton administration:

The Commerce Department released benchmark revisions to GDP back to the first quarter of 2001, which showed a different pattern than the previously seen three quarters of decline. The new data showed that GDP fell 0.5% in the first quarter of 2001, then rose at a 1.2% pace in the second quarter, and fell at a 1.4% rate in the third quarter. The old 2001 data had GDP falling at annual rates of 0.2%, 0.6%, and 1.3% in the first through third quarters, respectively.

Armed with a negative third quarter in 2000, Mr. Bush and others in his administration have been arguing that they "inherited" a recession when they took office. In fact, the new data would suggest that there was no recession at all, according to the oft-cited definition of a recession as a downturn in economic activity represented by at least two consecutive quarters of falling GDP.

Its not just ego: The fear is that blame for the recession is more resonant if it started under Bush II, rather than merely inheriting the slow down form Clinton.

This is a peculiarly amusing parallel -- between father and son -- each presiding over the two most significant downturns of the last 25 years happening under Presidents named Bush. Of course, rationalists will tell you that both recessions would have happened anyway, even if neither Bush took office. But if you are superstitious, it makes you wonder what bad family mojo is kicking around, potentially making both Presidents one termers.

Stay tuned.

U.S. Economic Growth Slows As Consumers Curb Spending
WALL STREET JOURNAL, July 30, 2004 2:05 p.m.

Saturday, July 31, 2004 | 12:26 AM | Permalink | Comments (2) | TrackBack (1)
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Economic Growth Slows

Friday, July 30, 2004 | 02:39 PM


We've mentioned previously that as the stimulus fades -- once the pig is through the python -- the economy will settle into a more normalized growth rate. That process is now well under way:

The graphic above shows that the Frankenstein thesis -- a massive dose of stimulus in a post bubble/ excess-capacity era -- has generated an anemic recovery. Compare this to Ronald Reagan's full blown, chock full of new non-farm payrolls, self sustaining expansion.

Here is an excerpt of this official WSJ chatter:

U.S. economic growth decelerated to a slower-than-expected pace in the second quarter as consumer spending fell to its weakest rate in three years.

Gross domestic product, the total output of goods and services, increased at a 3% annual rate from April to June, the Commerce Department reported, compared with a revised 4.5% pace in the first quarter. The report showed gauges measuring prices rose slightly. Economists had expected a growth rate of 3.6% this spring, according to a survey by Dow Jones Newswires and CNBC.

One last issue, the government revised the benchmark used to calculate GDP since the Q1 2001. The recalculation calls into question the dating of the latest recession. We'll have more on this issue -- and the strong political overtones -- later.

U.S. Economic Growth Slows As Consumers Curb Spending
WALL STREET JOURNAL, July 30, 2004 11:16 a.m.

Friday, July 30, 2004 | 02:39 PM | Permalink | Comments (0) | TrackBack (0)
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Coconuts ventures into online Music

Friday, July 30, 2004 | 12:16 AM
in Music


I have kinda mixed feelings about this one: I get an advert in last weekend's paper for Coconuts Music & Movies; (their website wasn't even up as of Saturday). I was never a fan of their chain, whose prices tended towards MSRP.

Now here's where it gets interesting:

A terrific CD I've been intending to buy -- English jazz-pop singer-pianist Jamie Cullum: Twentysomething -- was on sale for $6.99 + free shipping. In additon, there were a buncha of discs prices at $4.99, $5.99, $6.99 and $7.99.

On the one hand, this was pretty cheap -- anything introducing genuine price competition into the industry is good. Indeed, I frequently argue that this is what CDs should cost at list price -- now as loss leaders.

One the other hand, I do not se how they can compete with either Amazon (before we even think about iTunes). The site is somewhat thin. There is little in the way of content; I had to find the "Twentysomething" CD by searching directly for it -- it didn't come up under the artists name.

While Coconuts offers nowhere near the level of content, services and info that Amazon does, its worth watching. If these prices are typical, they can definitely build up an substantial niche of price sensitive sales.

Whether that's a viable business model or not is an entirely different question. But price competition is good, and it will be interesting to see how the marketplace responds.

Jamie Cullum - hi and dry

Jamie Cullum: Twentysomething

Friday, July 30, 2004 | 12:16 AM | Permalink | Comments (0) | TrackBack (0)
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Shrinking U.S. Incomes

Thursday, July 29, 2004 | 11:07 AM


Fascinating story in today's Times regarding the drop in Americans' incomes. The surprising culprit? "Falling incomes, rather than tax cuts, appear to count for the greatest share of the decline in income taxes paid."

graphic courtesy of New York Times

This two year consecutive drop, like the tech bubble that preceded it, is unprecedented in post war America:

"The overall income Americans reported to the government shrank for two consecutive years after the Internet stock market bubble burst in 2000, the first time that has effectively happened since the modern tax system was introduced during World War II, newly disclosed information from the Internal Revenue Service shows.

The total adjusted gross income on tax returns fell 5.1 percent, to just over $6 trillion in 2002, the most recent year for which data is available, from $6.35 trillion in 2000. Because of population growth, average incomes declined even more, by 5.7 percent.

Adjusted for inflation, the income of all Americans fell 9.2 percent from 2000 to 2002, according to the new I.R.S. data."

That is some nasty data. While we all have anecdotal tales as to how the public gets impacted by economic recessions, its certainly stark when you see it in black and white.

Continue reading "Shrinking U.S. Incomes"

Thursday, July 29, 2004 | 11:07 AM | Permalink | Comments (1) | TrackBack (2)
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Read it here first: Cuban Voters in Florida Could Determine the Outcome of the Election

Thursday, July 29, 2004 | 10:25 AM

As we have noted recently and on several occasions in the past, Cuban American voters in Florida continues to be a potential problem for President Bush in the upcoming election.

One of the small media outfits in town finally discovered this same issue:

"Critics say the measures, which were laid out in a policy report from a presidential commission led by Secretary of State Colin L. Powell, are chiefly intended to add to backing for President Bush among Cuban-Americans, a group White House advisers have acknowledged is central to his re-election strategy.

Paradoxically, some of the critics say, several provisions - like a tightening of travel restrictions and a curb on relief packages - may backfire, harming Mr. Bush's chances in Florida, a crucial swing state."

Sorry for the snarky attitude on this story, but where have you been for the past four months?

Get-Tough Policy on Cuba May Backfire Against Bush
N.Y. Times, July 29, 2004

Cuban Voters in Florida revisited
The Big Picture
Wednesday, July 14, 2004

Cuban Voters in Florida Wavering in Support for President
The Big Picture
Wednesday, March 24, 2004

Additional Poll on Florida's Cuban voters
The Big Picture
Wednesday, March 24, 2004

Thursday, July 29, 2004 | 10:25 AM | Permalink | Comments (0) | TrackBack (0)
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Money & Politics

Thursday, July 29, 2004 | 07:47 AM


"While U.S. voters are nearly evenly split about Mr. Bush's performance, a recent Wall Street Journal survey found that among professionals and managers, who tend to be wealthier than the average, 53% disapproved of his performance. Meanwhile, administration counterterrorism efforts have won support for Democrats among ethnic groups opposed to a focus on Middle Eastern immigrants."

Click for larger graphic

Democrats Tap a Rich Lode: Young, Well-Off Social Liberals
They Include Internet Tycoons And Some Who've Soured On Bush Administration
Shailagh Murray and Jeanne Cummings
The Wall Street Journal, July 29, 2004; Page A1

Thursday, July 29, 2004 | 07:47 AM | Permalink | Comments (0) | TrackBack (0)
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Confusing Politics With Economics

Wednesday, July 28, 2004 | 02:43 PM

The latest column, loosely based on Monday's comments, is up at RealMoney.com.

Here's the money quote:

"The market may not get it precisely right all the time, but it gets it right often enough to warrant paying close attention to what it's saying and why. If the economy slows, this gets reflected in the markets as lowered equity prices, often before the economic releases confirm it. Investors become less willing to pay more for slower growth, and that means weaker job growth. Invariably, this negatively impacts an incumbent's re-election chances.

Is that too general for you? Then let's get specific:

"Ned Davis Research did a recent study on post-World War II presidential campaigns and determined that while "job growth does not guarantee a victory, sluggish job growth historically has hurt the incumbent party." According to the study's data, the party in power lost the presidency whenever the change in nonfarm payrolls during the president's term was below 5%. This isn't a Republican or Democratic issue, but rather an incumbent vs. a challenger issue.

During the 1957-1960 period under Eisenhower, nonfarm payrolls grew at 2.4%, and the incumbent party lost. From 1989-1992, job growth was 1.8% and, again, the incumbent lost. In the present cycle, from 2001 to June 2004, job growth has been a negative 0.8%.

In light of these data, ask yourself: Are politics roiling the market, or are the economy and the market ailing the politicians? . . . While it may not always be "the economy, stupid," incumbents who ignore economic data do so at their own peril."

Wednesday, July 28, 2004 | 02:43 PM | Permalink | Comments (0) | TrackBack (0)
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Go ogle

Tuesday, July 27, 2004 | 10:20 AM

click for larger chart

Yesterday's Google comments bounced around the echo chamber quite a bit. Today, I see the NYTimes has a series of good graphics regarding the upcoming IPO.

I've always marvelled that everyone focuses on the mathematical usage of the term "Google" -- its the number 10^100. "Googleplex" -- the Google corproate campus -- is an even larger number: 10^[(10)^100].

Overlooked is the more simple grammatical breakdown: "Google" can be divided into "Go Ogle" -- meaning "to stare at, or observe."

click for larger chart

Lastly, Jim Cramer counts the ways the founders have screwed this up:

First, you buck the system, which had finally gotten a lot of the kinks out of it, and make sure that the thing's done Dutch. I know the bonds are used to Dutch auctions, but the unsophisticated public sure isn't. Start the Dutch revolution without me.

Second, you set the price at a level that is the most forbidding to the most people: north of $100. What the heck does that prove? That you intend to be the next Berkshire Hathaway?

Third, you talk about shareholder democracy but then you do the single most anti-democratic thing possible: issue two classes of stock.

Fourth, you wait until the dog days of summer to do the deal when no one's around anyway.

Fifth, you show total contempt for all of the institutions that, like it or not, represent most of the buyers out there, especially now that you price the deal at $100 a share.

Look, I know the process from 1998-2000 was deeply flawed. There was spinning going on, and friends and family and lots of laddering and all sorts of evil that since has been erased or silenced. The main flaw with the system, though, was that you couldn't reset demand on the fly to make it so that there was some sort of elasticity when buyers came in. The underwriters always blamed the SEC for that. If that was the real problem, let's deal with it. But this deal, I mean, can you say fiasco?

In six months, Google's gone from a company everyone wants a share of to perhaps the single-most scorned entity I can recall. Right out of the chute! Amazing.

Astute commentary from the always entertaining Cramer.

click for larger chart

As It Goes Public, Google Says It Is Worth Up to $36 Billion
NYTimes, July 27, 2004

How Google Has Ruined Its IPO Deal

By James J. Cramer
RealMoney.com, 7/27/2004 8:58 AM EDT

Tuesday, July 27, 2004 | 10:20 AM | Permalink | Comments (1) | TrackBack (0)
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Battleground States

Tuesday, July 27, 2004 | 07:48 AM

Another good chart from the graphic whizzes over at CBSMarketWatch

Check out their full coverage: CBSMarketwatch Election Special

Tuesday, July 27, 2004 | 07:48 AM | Permalink | Comments (0) | TrackBack (2)
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Confusing Cause & Effect

Monday, July 26, 2004 | 02:11 PM

As the indices flail about, groping for a bottom, the search for an explanation as to what ails the markets continues apace. The latest potential culprit: Politics! The WSJ quoted a political analyst today, who observed that:

“I would consider that uncertainty around the outcome of the presidential election [as] one of the major influences on the skittishness in the U.S. market."
This perspective gets the cause and effect relationship exactly backwards. Unfortunately, causative errors are an all-too-common analytical blunder when reviewing market data. Given the blaring headlines and search for certainty in an uncertain world, confusing cause and consequence is a regular occurrence. This is a perfect example of that foible.

Indeed, we often see this in misguided attempts to explain the chaotic machinations of markets’ complexity: When the indices are vulnerable - during mutual fund outflows, fading M2 supply, or excessive bullishness - we see everything but those factors getting blamed.

Indeed, I have yet to figure out why it is that some terrorist attacks “roil the market” while others (with the same appalling body count) get shaken off. The horror of the situation is the same, the tragic waste of life no different; Yet the markets somehow have totally different responses. Is it, perhaps, because these headline events are not really what is causing the markets to shudder and shake?

Returning to politics: Markets are not skittish because the incumbent is in trouble - that’s getting it backwards, a perfect example of confusing cause and effect. Incumbents are in re-election trouble because the future discounting mechanism of the markets is incorporating a slowing economy into its pricing. While the markets do not always get it precisely right, they do so often enough that a weakening economy-which hurts equity prices-invariably negatively impacts an incumbent’s re-election chances.

The Journal notes:

"The most talked-about political worry is Mr. Kerry's tax policy, which, according to his policy advisers, calls for undoing the recent cuts in capital-gains and dividend taxes for investors with incomes greater than $200,000.”
Is this what’s really been worrying the markets?

Unless there is total election shocker, there will be at most a divided government, with the House of Representatives unlikely to change leadership. This would force both branches of government to move towards the center, and govern moderately - an arrangement under both Presidents Reagan and Clinton that worked out quite well for equities.

Monday, July 26, 2004 | 02:11 PM | Permalink | Comments (0) | TrackBack (7)
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