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Income Gap Continues to Widen

Saturday, March 31, 2007 | 03:00 PM

To regular readers of TBP, this is very old news - but the significant play it has gotten recently is not.

We started discussing this in 2005 -- see The Disconnect and Economic Classes. I called it The Middle Class Squeeze; Dan Gross termed it the Cramdown. See also Middle Class Squeeze Continues and The Bifurcated Economy   

But the phenomena is very real, and it is  likely to continue as a factor imapcting sentiment as well as retail sales. 



Income Gap Is Widening, Data Shows
NYTimes, March 29, 2007

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The Armageddon Gang

Saturday, March 31, 2007 | 08:54 AM

Armageddon Interesting article in Time magazine, The Armageddon Gang, looking at the uber Bearish crowd.

The piece starts out pretty skeptically, but eventually, acknowledges risks and issues usually ignored in family publications. Frequent BP guest Mike Panzner gets a lot of ink:

"There are those who fret that current troubles in real estate will lead to an economic slowdown, maybe a recession. Then there's Peter Schiff. "Our standard of living is going to decline," the Connecticut stockbroker confidently declares. "There's no way around it, and it has just started. . . "

Schiff owns Euro Pacific Capital, a smallish firm that specializes in moving clients' money into nondollar assets like foreign stocks and bonds. Over the past couple of years, he has become a regular, hectoring presence on cable-TV business shows--on CNBC they call him "Dr. Doom." Now he has a book out, ominously titled Crash Proof: How to Profit from the Coming Economic Collapse.

It isn't the only such cheery tome on shelves these days. In Financial Armageddon: Protecting Your Future from Four Impending Catastrophes, trader Michael Panzner warns of an economic meltdown that will lead to Zimbabwe-style hyperinflation and possible martial law . . .

We have heard such pronouncements of impending doom before, of course . . . When I bring this record up with Panzner, he has a ready retort. "History didn't begin in the postwar period," he says. "History didn't begin 20 years ago." Living memory includes the Great Depression, begun in 1929 and stopped only by global war; stocks didn't fully recover until 1954. The scary scenarios painted by Panzner and his ilk are not outside the realm of historical experience. What's more, they're all grounded in the incontrovertible truth that much of our economic growth of the past 25 years--and almost all the growth of the past five--has been funded by debt."

What makes Mike's book more interesting than the typical doom and gloom tome is his politics: The four impending catastrophes he discusses are pulled equally from the playbook of the Left (Massive debt, unregulated derivatives) as well as the Right (Unfunded Pensions, Social Security and Medicare entitlement programs).

Remind me to introduce Mike to Larry Kudlow next week -- despite the less than sunny views in the book (which is the antithesis of Larry's perspectives), the concern with government  guarantees and entitlement programs are right up Kudlow's alley . . .


The Armageddon Gang
Time, Friday, Mar. 30, 2007

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Friday Night Jazz: Duke Ellington

Friday, March 30, 2007 | 06:30 PM

Duke_box An excellent WSJ article on Duke Ellington (by Nat Hentoff, former Village Voice music critic) has me all excited about a new box set: The Duke Box.

Here's Hentoff's comments:

"I now have a sense of what heaven could be like. For those of us for whom Duke Ellington is rejuvenatingly contemporary, Storyville -- the legendary Danish label, a cornucopia of ageless jazz -- has released "The Duke Box," available on Amazon.com and in record stores. The 1940s Ellington orchestra (his most exhilarating) is heard entirely in "live" performances -- in dance halls (where, as Duke told me, the dancers became part of the music), nightclubs, concert halls, and on radio remotes from around the country.

DukeIn the 40-page booklet -- with photographs by Herman Leonard and William Gottlieb, masters of decisive jazz moments -- Dan Morgenstern notes that the sound of Ellington "live" is more vividly realistic than "the dead (non-resonant) studios of that time." (Those studio recordings also do remain essential because Duke insisted on no more than two or three takes a song for maximum immediacy.) But, as I can attest from having been at some of the dance halls and concerts, Ellington and his wondrously distinctive sidemen were most memorably heard in person."

The WSJ was kind enough to move the entire article over to free WSJ as a courtesy to the weekend linkfest (Thanks, Dave!).

C Jam Blues (which sounds an awful lot like Duke's Place)

Satin Doll





Ellington's Band Is Heavenly In These 'Live' '40s Recordings
WSJ, March 28, 2007; Page D11

free WSJ

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Friday, March 30, 2007 | 02:30 PM

I am frequently accused of having a negative or bearish bias.

Its a rhetorical ad hominem device used by those who will not (or cannot) address the substantive issues. They prefer the personal attack, the name calling rather then discuss the merits. Its an effective technique if you aren't on guard for it.

I am biased -- by the facts. To quote The Daily Show's Rob Corddry: "How does one report the facts in an unbiased way when the facts themselves are biased?"

I have used this space to highlight positive developments on many occassions: We've been very upfront in suggesting that Oil prices -- even at $75 per barrel -- are not that expensive (it merely seems that way after 25 years of below inflation prices increases), and that gasoline is a relative bargain. For the newbies to the site, we tipped energy in December 2003; Gold and Japan in 2004.

Pre-blog, back in October 2002, I flipped Bullish. And, I heard the same accusations of being a Perma-Bull. We recommended a lot of tech and telecom -- Apple at $15 pre-split, MicroMuse (since bought by IBM ~$10) at $1.50 -- and many specific names in banking, and they were, for the most part, home runs.


Yes, I am biased; no I make no pretensions to be objective -- other than common sense, pragmatism, and what my life experience has taught me.

I believe what my interpretation of the facts show, what my models lead me to believe. I have an opinion, a perspective, a point of view.

Just as there is a difference between "Objective" and Ideological;" so too there is a difference between objective and neutral.

Friday, March 30, 2007 | 02:30 PM | Permalink | Comments (64) | TrackBack (0)
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Final Q4 GDP: Goldilocks has left the building

Friday, March 30, 2007 | 06:45 AM

Markets rallied yesterday morning on the Final GDP data, revised to 2.5% - up from 2.2% Preliminary report (2/28) but down from the  initial Advance (1/31) read of 3.5%. But the indices gave up those gains and then some as the day wore on. A little "window dressing" into quarter's end closed the markets in the green by day's end.

Was the GDP "improvement" really all that good? A quick look at the details suggests otherwise.

The 0.3% improvement was two parts inventory build (primarily autos), one part GDP deflator "adjustment." Pretax corporate profits decreased 0.3% in the fourth quarter of 2006, the first quarterly decline since the third quarter 2005.

CapEx spending remains punk, as corporate management is cutting back on all manners of spending to avoid eating into profits -- short term thinking at its finest. Nonresidential investment fell 3.1% for Q4, worse than the initially reported decline of 2.4%. But the big miss was Equipment and software spending -- down 4.8% (vs initial -3.2%). This is consistent with the series of weak durable-goods reports we hav sen the past few months.

Signs of economic strength? Hardly.


"The (GDP) headline number looks better, but the gut of the report is a little worse," said Robert Brusca, chief economist for Fact and Opinion Economics in New York. "Going forward, we still don't know, but you should be disturbed by the lack of capital spending."

Business investment spending fell at a 3.1 per cent annual rate in the fourth quarter rather than the 2.4 per cent decline the government estimated a month ago. That contrasted with a 10 per cent third-quarter jump.

Spending on new-home building plummeted by 19.8 per cent – even steeper than the 19.1 per cent fall estimated a month ago – after an 18.7 per cent drop in the third quarter.

It was the fifth quarter in a row that residential spending has fallen and the steepest since a 21.7 per cent plunge in the first quarter of 1991 when the economy was on the brink of recession."

The overall trend of GDP, corporate profits, durable goods and CapEX spending is downward. Housing, Autos, and Manufacturing are already in a recession (I have a car coming off lease May 1st, and I plan on waiting some time to see what sort of incentives the auto industry will be throwing my way as inventory continues to build). I don't see how these issues get any better any time soon.

Goldilocks has left the building . . .


U.S. GDP growth hobbled by stocks of unsold goods
Rising inventories, give year-end lift but spending curb suggests slowdown
Glenn Somerville
Reuters Mar 30, 2007 04:30 AM

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Media Appearance: Kudlow & Company (3/29/07)

Thursday, March 29, 2007 | 04:30 PM
in Media


Its a TV two-fer today:

Back in the studio tonite with Larry uber-Bull Bob Pisani, from 5:10 - 5:30 pm (I'm remote from NY).

Recall the last time I was on with Bob Pisani (he as a guest), he was astoundingly Bullish -- about a week before the February 27 correction began. (I am now referring to those highs as the Bob Pisani top!)

Also in the studio are Michael Cuggino and the very bearish Gary Shilling.

Since this was scheduled, DELL was halted and news re;eased; It reopened about ~$1 lower: I assume this will be viewed as very company specific, and not spill over to the general tech market. Dell has long since lost its status as a tech bellwhether.

That said, some of the Tech Bears (Hickey, Fleckenstein, et. al.) have argued that much of the "E" in the P/E ratio is pretty ginned up. We now know they were right -- at least as far as Dell is concerned.

Tonite will definitely be fun!

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Media Appearance: Bloomberg TV (03/29/07)

Thursday, March 29, 2007 | 10:45 AM
in Media


This morning I'm on Bloomberg TV, from 11:00am to noon, on the show Open Exchange with Michelle Safo. We will be discussing the Markets, Fed speak, the slowing economy, various sectors, and whatever else comes up.

Some bullet points I hope to hit:

• Inflation remains elevated, as the economy slows: Demi-stagflation

•  Where's the leadership? Last week's rally saw Utilities and Telecoms, hardly the sectors you want to see pulling the train.

• eBay, Disney, GE, Mosaic are some of the stocks we will discuss.

If you are not near a TV, you can stream it here:

Should be fun. . .

Thursday, March 29, 2007 | 10:45 AM | Permalink | Comments (6) | TrackBack (0)
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Q4 '06 GDP: 2.5%

Thursday, March 29, 2007 | 10:00 AM

Gdp_q4_finalQ4 GDP (Final) for 2006 came in at 2.5%. This was revised to above the previously downwardly revised report but above the downwardly revised consensus expectations of 2.2% (Got that?)

Markets rallied on the news that 4 - 6 months ago, GDP was bad, but not quite as bad as previously believed. (So much for the market as a forward looking discounter).

A quick lesson in Commerce data reporting for the newbies out there:   We get 3 GDP reports (on I believe the last Thursday) of each month following a quarter's end: Advance (1/31), Preliminary
(2/28) and Final (3/29).

Q4 GDP took a particularly tortured route: the Initial report was surprisingly high, and the individual components clearly conflicted with data already released (we noted this number was a fantasy here). The next revision surprised people to the down side, as it took ~a third off og GDP.

Our original guestimate was for 2 - 2.5%, and this number is consistent with that.

Peter Bookvar notes: "An upward revision to inventories, a better trade deficit, and Govt spending" as the main factors in the upward revision. Personal spending was left unchanged, and CapEx spending (equipment, software and residential construction) went down. This bodes poorly for further growth, as we have long been told that Business CapEx was ready to take over when the consumer finally falters. That is looking increasingly unlikely.

The WSJ noted:

"Profits are being squeezed by receding demand and rising labor costs. Retail sales were flat in February after inching 0.1% higher in January. Business sales fell 0.7% in January and had gone up 1.9% in the previous 12 months. The Labor Department reported recently that unit labor costs swelled by 6.6% in the final quarter of 2006, up from 1.1% in the third quarter. Labor costs rose an average 3.2% in 2006, which had been the sharpest annual increase since 2000 . . .

The biggest component of GDP is consumer spending. Fourth-quarter spending by consumers rose an unrevised 4.2%, which was above the third quarter's 2.8% advance. Consumer spending accounts for the lion's share of economic activity -- about 70%. It contributed 2.93 percentage points to GDP in the fourth quarter."

Here's a quick chart:


Chart courtesy of Barron's



Fourth-Quarter GDP Revised Up
To 2.5% on Inventory Investment
March 29, 2007 9:41 a.m.

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Globalization & Inflation

Thursday, March 29, 2007 | 06:54 AM

As noted yesterday, Traders were none too happy with BB's testimony, setting them straight on the errors of their ways last week. 

The always astute Bill King points out that this should not have been a surprise. Bill notes that a speech the Chairman made earlier in the month at Stanford, Bernanke explicitely noted concerns about Globalization and his inflation worries:

"On the other hand, not all aspects of globalization and trade reduce inflation. For example, globalization has been associated with strong growth in some large emerging-market economies, notably China and India, and this growth likely has contributed to recent increases in the prices of energy and other commodities. During 2003-05, for example, China alone accounted for nearly one-third of the growth in both global real gross domestic product (GDP) and oil consumption.

It is difficult to assess the exact extent to which increased demand by developing countries has contributed to the run-ups in commodity prices in recent years, as these prices are also affected by supply conditions and other factors. However, one study estimated that, if the share of world trade and world GDP enjoyed by non-industrial countries had remained at its 2000 levels, then by 2005 real oil prices would have been as much as 40 percent lower, and real metals prices 10 percent lower, than they actually were (Pain, Koske, and Sollie, 2006).

Accordingly, in the past several years, the effect of growth in developing economies on commodity prices has been a source of upward pressure on inflation in the United States and other industrial economies.

When the offsetting effects of globalization on the prices of manufactured imports and on energy and commodity prices are considered together, there seems to be little basis for concluding that globalization overall has significantly reduced inflation in the United States in recent years; indeed, the opposite may be true.   (emphasis added)

--Chairman Ben S. Bernanke, March 2, 2007

Now, I am cherry picking a few paragraphs out of a 4324 word speech. And the Fed Chairman, like all economists, is two-handed.

However, a careful read of his full speech, along with some intelligent context, makes it clear that the Fed remains quite concerned about Inflation on the one hand, and slowing economy on the other. Pick a hand, and draw your own conclusions.


Globalization and Monetary Policy
Remarks by Chairman Ben S. Bernanke
At the Fourth Economic Summit, Stanford Institute for Economic Policy Research, Stanford, California
March 2, 2007

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The CD Is Dead! Long live the CD!

Wednesday, March 28, 2007 | 05:30 PM


Dan Gross has an interesting column on Slate: The CD Is Dead! Long live the CD!

"What we are witnessing is not so much the imminent death of CDs but the death of the old methods of selling CDs. It's still possible to make money in the CD business—any business with more than $7 billion in retail sales should allow someone, somewhere, to make a profit. The incumbents are getting killed, but upstarts are thriving, using different methods."  (emphasis added)

Yeah, TBP got a mention in it -- our prior discussion of how Amazon's music best sellers are under $10.

But my favorite line it in comes towards the end of the column:  "Is the CD dying as a commercial product? Sure. But it's got a lot of dying left to do."


The CD Is Dead! Long live the CD!
Daniel Gross
Slate, Tuesday, March 27, 2007, at 4:01 PM ET

Wednesday, March 28, 2007 | 05:30 PM | Permalink | Comments (9) | TrackBack (0)
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