Monthly Archives: November 2010

Nassim Taleb Quote On Bernanke

In the November 22 – November 28 Bloomberg BusinessWeek, p23, Nassim Taleb is quoted as saying the following, which I find interesting:

“Bernanke is someone who talks about returns without talking about risk.  It’s identical to a pilot who talks about speed but not about safety.  The measures he is using may work, but should they fail, the risks are humongous.”

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A Special Note concerning our economic situation is found here

SPX at 1187.76 as this post is written

George W. Bush / Larry Kudlow Interview November 2010

Last Monday, CNBC aired a recent interview (with a transcript) of former President George W. Bush by Larry Kudlow.  The interview focused on George W. Bush’s recently published book (“Decision Points”) and the Financial Crisis of 2008-2009.

I found various comments by George W. Bush to be interesting.  In many instances I disagree with what he said.  For now, I will briefly highlight a few items and may extensively comment about this interview later.

Particularly notable is George W. Bush’s comments about TARP, interventions, and government involvement.

However, two of his phrases really stand out above all others.  I find them of the utmost importance.  The first is:

“I had to abandon free market principles in order to save the free market system.”

The second is (with regard to the need for action during the Financial Crisis):

“…there’s not a lot of time for theoretical debate.”

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A Special Note concerning our economic situation is found here

SPX at 1189.40 as this post is written

“The Billion Prices Project” – Comments

I am finding “The Billion Prices Project” to be valuable.

From the homepage, “The Billion Prices Project is an academic initiative that collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research.”

Two of the most prominent benefits I see from the data include that data is available daily and it serves as a comparison and is plotted against the CPI (last available data) for references purposes.  The current (as of 11-22-10) “Billion Prices” index value for the U.S. is 100.51.

As well, data is available for a number of countries.

This data from  “The Billion Prices Project” should be interesting to monitor going forward…

A Special Note concerning our economic situation is found here

SPX at 1180.73 as this post is written

Updates On Economic Indicators November 2010

Here is an update on various indicators that are supposed to predict and/or depict economic activity.  These indicators have been discussed in previous blog posts:

The November Chicago Fed National Activity Index (CFNAI)(pdf) updated as of November 22, 2010:

The Consumer Metrics Institute Contraction Watch:

The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the October 27 Release, titled “Latest economic index forecasts weak growth through first quarter” :

“The October update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, slowing to 1.4% in October and then increasing to 2.0% in February and March, as weak housing and employment conditions continue to impede growth.”

The ECRI WLI (Weekly Leading Index):

As of 11/12/10 the WLI was at 124.3 and the WLI, Gr. was at -4.5%.  A chart of the growth rates of the Weekly Leading and Weekly Coincident Indexes:

The Dow Jones ESI (Economic Sentiment Indicator):

The Indicator as of November 1 was at 43.9, as seen below:

An excerpt from the November 1 release:

“The Dow Jones Economic Indicator (ESI) jumped 3.2  points to 43.9  in October, an unusually strong gain. In back-testing through 1990, election year Octobers averaged a 0.3 point rise. The ESI is now at its highest point since December 2007.

October’s gain, however, was preceded by a 2.5 point drop in September. The ESI’s turbulence implies that the economy is teetering between a slow climb up and a relapse.

“The Dow Jones ESI rebounded in October from its dip the previous month, resuming a modest upward trend seen during much of the year,” Dow Jones Newswires “Money Talks” Columnist Alen Mattich said. “The indicator, however, is still well below levels seen during normal expansions. The October number was not particularly boosted by press coverage of impending quantitative easing from the Federal Reserve or from any one off factors, supporting the view that it reflects self sustaining growth in the economy.”

The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:

Here is the latest chart, depicting 11-13-08 to 11-13-10:

The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:

As per the November 18 release, the LEI was at 111.3 and the CEI was at 101.5 in October.

An excerpt from the November 18, 2010 Press Release:

“Says Ken Goldstein, economist at The Conference Board: “The economy is slow, but latest data on the U.S. LEI suggest that change may be around the corner. Expect modest holiday sales, driven by steep discounting. But following a post-holiday lull, the indicators are suggesting a mild pickup this spring.”

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I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

A Special Note concerning our economic situation is found here

SPX at 1197.84 as this post is written

Companies Fastest To $1 Billion In Sales

In Friday’s post, I mentioned consumers’ migration to lower-priced stores.

This continual consumer migration to lower-priced sources can be seen in a variety of statistics.  One statistic that I find particularly interesting is contained in a Forbes story of September 3, 2010 titled “The Next Web Phenom.” At the end of the story it states “Groupon is on pace to pull in $1 billion in sales faster than any company in history. This list excludes investment holding companies (which tend to be preassembled before formally launching) and those built mainly through mergers or acquisitions.”

In the accompanying graphic, it shows how long it took the other fastest companies to grow to $1 Billion in sales.  Interestingly, of the eight fastest listed since 1995, every one – with the exceptions of Yahoo and Google – have a business model focused on offering (highly) discounted goods or services to consumers.

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A Special Note concerning our economic situation is found here

SPX at 1197.15 as this post is written

Walmart’s Q32011 Results – Comments

I found two especially notable items in Walmart’s Q3 conference call transcript (pdf).  I view Walmart’s results as particularly noteworthy given their retail prominence and focus on low prices.  I previously commented upon their results in the May 20 post.

First, from page 13, “Comp store sales for the 13-week period, which ended October 29, declined 1.3 percent…”  Although I didn’t see it mentioned in the transcript, this was the 6th straight quarter of drops.  One factor that may be fueling this decline is that apparently lower-price rivals – such as “dollar” stores and Aldi stores – are impinging on sales.  Although it is not clear to what extent this is happening, I think from an overall economic standpoint it is very telling – and at least somewhat alarming – that a significant number of people apparently are seeking lower price alternatives to Walmart.

Second, from page 8, “Our own surveys and the reports on the recent U.S. election cycle indicate that financial uncertainty still weighs heavily on
everyday Americans, including many of our core customers. The paycheck cycle is still pronounced for these customers.”  This “paycheck to paycheck” condition is something I have discussed in the aforementioned May 20 post as well as the September 23, 2009 post.  While it is not something that receives a lot of mention – and statistics on it are difficult to find – I feel that it is nonetheless important as it highlights strains in, among other things, household finances, affordability, and standard of living.

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A Special Note concerning our economic situation is found here

SPX at 1192.86 as this post is written

Gallup Economic Surveys – Comments

Gallup has a variety of economic surveys that I find interesting.

Here are charts of three that I find especially noteworthy:

Americans’ Standard of Living Optimism: (reported November 5, 2010)

U.S. Economic Confidence (reported November 9, 2010)

U.S. Consumer Spending (reported November 11, 2010)

At each link, details of each survey are presented.

These charts, along with other Gallup economic surveys,  should be interesting to monitor going forward.  Although I believe that (economic) surveys, in general, should be interpreted with caution, these Gallup surveys appear to provide a valuable additional perspective on various economic aspects.

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A Special Note concerning our economic situation is found here

SPX at 1178.59 as this post is written

Philadelphia Fed – 4th Quarter 2010 Survey Of Professional Forecasters

The Philadelphia Fed Fourth Quarter 2010 Survey of Professional Forecasters was released on November 15.  This survey is somewhat unique in various regards, such as it incorporates a longer time frame for various measures.

The survey shows, among many measures, the following expectations, which are close to other economic survey results featured on this blog:

GDP:

full-year 2010 : 2.7%

full-year 2011 : 2.5%

full-year 2012 : 2.9%

full-year 2013 : 3.0%

Unemployment Rate: (annual average level)

for 2010: 9.7%

for 2011: 9.3%

for 2012: 8.7%

for 2013: 7.9%

As for “the chance of a contraction in real GDP in any of the next four quarters,” estimates range from 11-13.8% for each of the quarters through Q4 2011.

As well, there are also a variety of time frames shown with the expected inflation of each.  Inflation is measured in Headline and Core CPI and Headline and Core PCE.  Over all time frames expectations are shown to be in (or very close to) the 1-2% range.

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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 many of the consensus estimates and much of the commentary in these forecast surveys.

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A Special Note concerning our economic situation is found here

SPX at 1178.34 as this post is written

The November 2010 Wall Street Journal Economic Forecast Survey

The November Wall Street Journal Economic Forecast Survey was published November 15, 2010.

I found a couple of items to be especially interesting.

First, regarding the impact of QE2:  “The economic impact of the Fed’s moves is likely to be modest, the forecasters said. They estimate growth in GDP will rise by 0.2 percentage points in 2011 because of the Fed’s bond buying and the unemployment rate will fall by less than 0.1 percentage point.”

Second, “Although the economists expect slow growth and continued high unemployment, they put the odds of renewed recession in the next 12 months at 16%, the lowest level since the May survey and down from a high of 21% in September.”

The current average forecasts among economists polled include the following:

Ten-Year Treasury Yield:

for 12/31/2010: 2.61%

for 12/31/2011: 3.51%

CPI:

for 12/1/2010: 1.2%

for 12/1/2011: 1.9%

Unemployment Rate:

for 12/1/2010: 9.6%

for 12/1/2011: 8.9%

Crude Oil  ($ per bbl):

for 12/31/2010: $82.95

for 12/31/2011: $86.43

GDP:

full-year 2010 : 2.5%

full-year 2011 : 2.9%

(note: I comment upon this survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)

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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 many of the consensus estimates and much of the commentary in these forecast surveys.

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A Special Note concerning our economic situation is found here

SPX at 1197.75 as this post is written

Monetary Policy And The U.S. Dollar

As those familiar with this blog know, I am very concerned about the vulnerability of the U.S. Dollar to a substantial decline.  I have written extensively about this situation.

On November 12, Macroeconomic Advisers had a blog post from Larry Meyer that discussed monetary policy (focused on QE2) and the U.S. Dollar.  While I don’t agree with various parts of this blog post, I nonetheless think it is noteworthy to see what a (very) prominent economic consulting firm has to say on the issue.

Here are some excerpts from that November 12 post:

How does the exchange rate affect monetary policy? How will the foreign backlash affect monetary policy going forward?

  • We have not changed our firmly-held view that the FOMC has no dollar policy; it has no target for the dollar, just as it has no target for equity valuations. Dollar policy is the realm of the Treasury. The foreign backlash will not dissuade the Committee from pursuing what it sees as appropriate policy.
  • For the most part, the dollar has two roles with respect to monetary policy: First, it is part of the transmission mechanism, part of how monetary policy affects the economy. Second, to the extent that the dollar moves independently of monetary policy, it is like any other variable: The FOMC takes actual and projected changes in exchange rates into account in its forecast and responds accordingly.
  • There are two circumstances (discussed below) under which the dollar would take more of a center stage in FOMC deliberations: (i) a “free fall” in the dollar and (ii) a tighter and more intense link between the dollar and commodity prices in a context of a faster pass-through from commodity prices to long-term inflation expectations and core inflation.

also:

Does the FOMC ever worry about the dollar? Yes, under two circumstances:

  • A Dollar Collapse: If the dollar were to go into “free fall” (we will know it when we see it), the FOMC would face an enormous challenge because that would be catastrophic for the U.S. and foreign economies alike. There would be chaos in financial markets around the world. This is a nightmare scenario for the Fed, but a tail risk. Here, we expect that the FOMC would have to be part of the policy response to stabilize the dollar. Free fall, however, is much more likely as a result of continued fiscal irresponsibility in the U.S.
  • The Dollar-Commodities-Inflation Nexus: The FOMC likely worries about the recent seemingly more intense relationship between the dollar and commodity prices. The consequences depend on the degree to which commodity prices are passed through to core inflation. In any case, a sharp and persistent rise in commodity prices could raise concern about an unhinging of long-term inflation expectations, which, in turn, could affect monetary policy. Today, however, the main driver of rising commodity prices, we believe, is supply and demand, especially soaring demand by Asian economies.

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A Special Note concerning our economic situation is found here

SPX at 1199.21 as this post is written