Archive for June, 2010

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Bloomberg BusinessWeek Story – Wall Street’s Biggest Bears

Tuesday, June 15th, 2010

The June 14-June 21 2010 Bloomberg BusinessWeek had a cover story titled “Time to Slip Into Something Less Comfortable?”

The subtitle reads: “The bearish forecasters who rose to fame in the market crash of 2008 have, for the most part, not surrendered their pessimism.  Their moment could be coming back around.”

While I don’t necessarily agree with all of the comments by the prognosticators in the article, I do think that many of them deserve contemplation.  The article appears to be a good summary of their many concerns.

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Ben Bernanke’s Comments On The Current Economic Forecast

Tuesday, June 15th, 2010

I found Ben Bernanke’s comments on the economic outlook, given last Wednesday (June 9), to be interesting.

Here are some excerpts, as published in this Wall Street Journal article of June 10:

“Federal Reserve Chairman Ben Bernanke offered guarded reassurances about the economy in testimony to the House Budget Committee Wednesday, saying a new recession is unlikely and that the Fed still expects the U.S. economy to grow at a 3.5% annual rate in the months ahead.”

also:

“”Forecasting is very difficult and I make no promises in any particular direction,” he said, “but it appears to us that the recovery has made an important transition from being supported primarily by inventory dynamics and by fiscal policy toward a recovery being led more by private final demand.” Still, he added, a double-dip recession couldn’t be “entirely ruled out.”"

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The June 2010 Wall Street Journal Economic Forecast Survey

Monday, June 14th, 2010

I found The June Wall Street Journal Economic Forecast Survey was interesting on a couple of fronts.

First, as stated in the article, “The economists in the survey put the odds of a double-dip recession at 19%.”

Second, as seen in the detail of this survey, the survey now includes more forecast information for December 2011. The current average forecasts for December 31, 2010 and December 31, 2011 among economists polled include the following:

Ten-Year Treasury Yield:

for 12/31/2010: 3.87%

for 12/31/2011: 4.58%

CPI:

for 12/31/2010: 1.4%

for 12/31/2011: 2.0%

Unemployment Rate:

for 12/31/2010: 9.4%

for 12/31/2011: 8.6%

Crude:

for 12/31/2010: $76.82

for 12/31/2011: $80.87

GDP:

full-year 2010 : 3.2%

full-year 2011 : 3.1%

Of note, with the exception of the GDP and Unemployment Rates , the above categories did see significant change in average expectations since last month’s survey.

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with the many of the consensus estimates and much of the commentary in these forecast surveys.

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The Bond Bubble

Friday, June 11th, 2010

On June 8 The Wall Street Journal had an article titled “Bond-Fund Managers See Signs of a Bubble.”

While most people wouldn’t think of the bond market as having bubble characteristics, nonetheless such a bubble has developed.

The article mentions several vulnerabilities the bond bubble faces.  I would add that a major vulnerability is a repricing of risk due to perceived asset quality, due to a variety of issues.

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S&P500 Earnings Forecasts & Forecast Accuracy

Thursday, June 10th, 2010

On June 1 The Wall Street Journal had an article titled “Analysts Cheer For Recovery.”

From the article:  “Current estimates put the S&P 500 on track for earnings per share of $85.26 this year, according to Thomson Reuters, a return to 2007 levels. Analysts’ $96.61 forecast for 2011 earnings would mark a record that surpasses the 2006 peak.”

However, what I found most notable is a quote from Ed Yardeni, with regarding to analyst forecasts:

“They’re pretty good at anticipating earnings when the economy is expanding,” says Ed Yardeni, president of Yardeni Research, “but they typically don’t see recessions coming.”

One of the most notable aspects of the economic weakness of  2008-early 2009 was that economic forecasters almost completely failed to predict it.  I believe that this is very significant for a variety of reasons;  perhaps foremost is whether this inability to predict the last economic crisis is indicative of whether they will be able to foresee the next one.

I’ve put together some examples of forecasts in the 2007 to early 2009 time period; it can be found at this link (also listed under “Predictions” along the right-hand side of the home page).

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Disturbing Charts (Update 1), Part II

Tuesday, June 8th, 2010

As a continuation of the last post, here are three other charts that I find disturbing in nature.

These charts raise a lot of questions.  Many of these questions I have discussed in the blog, as I believe they are very significant in nature.  Additionally, these charts should highlight the “atypical” nature of our economic situation from a long-term historical perspective.

Here is a St. Louis Fed chart depicting the Median Duration of Unemployment (last updated 6-4-10):

These next two charts are from the Minneapolis Federal Reserve.  These charts really provide a perspective on the length and extent of this downturn.  The first depicts our Unemployment situation (last updated 6-4-10):

This depicts Output (last updated 5-27-10):

I will update these charts on an intermittent basis as they deserve close monitoring.

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Disturbing Charts (Update 1), Part I

Tuesday, June 8th, 2010

In the next two posts, I am going to display various charts that I find disturbing.   These charts would be disturbing at any point in the economic cycle; that they depict such a tenuous situation now – nearly a year into what most believe is an economic recovery – is especially notable.

Many more such charts exist, unfortunately.  I regularly discuss many troubling characteristics of our economy in this blog.

As well, I find many aspects of the financial markets to be problematical.  These aspects are frequently discussed.

All of these charts are from The Federal Reserve, and represent the most recently updated data.  I especially find these charts valuable as they depict our current situation in a longer-term historical context.

Charts in this post are from the St. Louis Federal Reserve.  Here are the charts:

Housing starts (last updated 5-18-10):

The Federal Deficit (last updated 3-8-10):

Federal Net Outlays (last updated 3-8-10):

State & Local Personal Income Tax Receipts  (% Change from Year Ago)(last updated 3-26-10):

Total Loans and Leases of Commercial Banks (% Change from Year Ago)(last updated 6-7-10):

Bank Credit – All Commercial Banks (Percent Change from Year Ago)(last updated 6-7-10):

M1 Money Multiplier (last updated 5-27-10):

Now, onto Part II – unemployment and output…

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Economic Impact Of Policies

Monday, June 7th, 2010

On May 18 The Wall Street Journal had an article on a new lead-paint law titled “New Lead-Paint Law Heavy on Budgets.”

This law serves as a good example of an important issue I wrote of in my May 2009 article “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’?”

In that article I wrote of the need for policies to be thoroughly assessed with regard to overall economic impact, compared with whatever “societal good” the policy purports to accomplish.

A thorough discussion of the benefits and costs of this new lead-paint law would be exceedingly lengthy and complex.  However, I believe that this lead-paint law, if thoroughly analyzed from an “all things considered” standpoint – taking into account both “societal good” as well as economic impacts – would be found to be (far) suboptimal in many respects.  Of particular concern is that this is yet another law that disproportionately (negatively) impacts small businesses.

While one may dismiss this new law as one that is limited in nature and thus relatively insignificant, it is important to note that it is just one example among many in which inadequate overall analysis was conducted.   Cumulatively, these poorly analyzed policies are very significant in determining whether America’s economic future will be that of a “greenfield” or “brownfield.”

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“Chronic Joblessness”

Friday, June 4th, 2010

The Wall Street Journal of June 2 had an article titled “Chronic Joblessness Takes Toll.”

I have written extensively about the unemployment  situation for a number of reasons.  Perhaps chief among these reasons is that I believe the situation is far worse than generally acknowledged.

While it is easy to dismiss the unemployment problem with glib statements or convoluted reasoning, I believe the issue is very complex and threatening.  As seen in the aforementioned Wall Street Journal article, as well as various charts shown on this blog, there is little doubt that from a long-term historical perspective our unemployment problems are outsized.  Additionally, there are many facets of our unemployment situation that go unrecognized yet are exceedingly important.

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Last year I wrote a series of blog posts titled “Why Aren’t Companies Hiring?” which contains many of my thoughts on the issue.

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Cost Cutting – A Few Comments

Friday, June 4th, 2010

McKinsey Quarterly had an interesting May 2010 article on cost cutting.

I have many thoughts on the issue of cost cutting.  The issue is complex and  particularly challenging as detailed data and analyses on the subject seem to be lacking, despite cost cutting’s widespread popularity over many years.

While prudent management of costs is of course beneficial, I believe that in general, the benefits of cost cutting are often exaggerated.  The reasons for this are various.

However, the detriments of cost cutting are rarely acknowledged or discussed.  This is unfortunate as these detriments can be very significant and pernicious across a variety of fronts.

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