Monthly Archives: April 2011

Recovery, Recession, Or Depression?

One of the more interesting facets of our current economic situation is that a case can be made that the economy is in a recovery (or expansion), recession, or depression.

This observation is supported by a number of factors, including that of a Gallup poll released yesterday.  The poll is titled “More Than Half Still Say U.S. Is in Recession or Depression.”

The poll displays a variety of information, but the main finding is that currently 27% of the respondents indicate the economy is “growing”, 16% say it is “slowing down”, 26% think it is “in a recession,” and 29% think it is “in a depression.”

Also of note from the poll, “Although economists announced that the recession ended in mid-2009, more than half of Americans still don’t agree. These ratings are consistent with Gallup’s mid-April findings that 47% of Americans rate the economy “poor” and 19.2% report being underemployed.”

As well, from the poll’s Press Release:  “In another possible disconnect with monetary policymakers, many Americans may not see the trade-off Bernanke suggests between promoting a stronger economy and experiencing higher inflation. Right now, prices are soaring, yet the latest Gallup Daily tracking data show that 67% of Americans say the economy is “getting worse.”


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1359.01 as this post is written

Updates On Economic Indicators April 2011

Here is an update on various indicators that are supposed to predict and/or depict economic activity:

The April Chicago Fed National Activity Index (CFNAI)(pdf) updated as of April 28, 2011:

CFNAI graph

The Consumer Metrics Institute Contraction Watch:

The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the March 23 Press Release, titled “Economic index forecasts stronger growth” :

“The March update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, increasing to 3.7% to 3.8% during the summer months. Gains in manufacturing, capital spending and exports are fueling the growth. Consumer spending and employment are expected to continue improving, though at a moderate pace.”

The ECRI WLI (Weekly Leading Index):

As of 4/15/11 the WLI was at 131.6 and the WLI, Gr. was at 7.7%.  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 March 31 was at 43.2, as seen below:

An excerpt from the March 31 Press Release:

“Weighted down by concerns about future consumer spending, the Dow Jones Economic Sentiment Indicator dropped 3.3 points to 43.2 in March. This is indicator’s lowest point since September 2010 and its sharpest drop since the autumn of 2008 when the global financial markets were collapsing.”

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

Here is the latest chart, depicting 4-23-09 to 4-23-11:

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

As per the April 21 release, the LEI was at 114.1 and the CEI was at 102.9 in March.

An excerpt from the April 21, 2011 Press Release:

Says Ataman Ozyildirim, economist at The Conference Board: “The U.S. LEI continued to increase in March, pointing to strengthening business conditions in the near term. The March increase was led by the interest rate spread and housing permits components, while consumer expectations dropped. The U.S. CEI, a monthly measure of current economic conditions, also continued to rise, led by gains in industrial production and employment.”


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.

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1360.36 as this post is written

Ben Bernanke’s April 27 Press Conference – My Comments

Yesterday, Ben Bernanke gave his scheduled Press Conference.

While there were few, if any, disclosures that would be considered “new,” I did feel as if many of his comments were notable.  While I could comment extensively upon his remarks of yesterday – as I partially or fully disagree with many of them – I will only address a few items.

His comments, as accurately as I can relay them, are seen in italics below:

@47:20 “…we have a lot of experience understanding how financial conditions…how they effect the economy…”

my comment:  While The Federal Reserve undoubtedly has immense collective experience, both on a direct (through observation) and indirect (through research of past economic events), the question I would raise is the following:  If our current economic situation is very dissimilar to previous ones, how does that change the value of this experience?  I think a very strong case can be made that our current economic situation is (vastly) dissimilar to those previous.

Bernanke’s comments on the U.S. Dollar were interesting.  After earlier seeming to imply that the U.S. Dollar should be officially addressed by the Treasury Department, Bernanke then later made a few comments.

@ 49:30:  “We do believe that a strong and stable Dollar is in the interest of the United States and is in the interest of the global economy.”

@49:42:  “Our view is that the best thing we can do for the Dollar is first to keep the purchasing power of the Dollar strong by keeping inflation low, and by creating a strong economy…”

and this, said in response to the idea of a problematical weak Dollar:

@50:12:  “…I don’t think I really want to address a hypothetical which I really don’t anticipate.”

my comment:  Many thought that Bernanke’s comments on the Dollar indicate that the strength of the Dollar will “take a backseat” to that of efforts to promote a strong economy.  As for myself, I think that the weakening of the Dollar has already caused significant problems, and that the Dollar is highly vulnerable to a substantial decline – one that will prove exceedingly harmful to the economy and financial markets.  I have written of this situation extensively.

@54:00 there is a question as to the pace of the recovery, in which the “Reinhart and Rogoff book” is mentioned, as well as expectations placed on The Federal Reserve as far as its helping the economy to recover.

@57:03 “I do think that the pace will pick up over time. And I am very confident that, in the long run, that the U.S. will return to being the most productive, one of the fastest growing and dynamic economies in the world.

And it hasn’t lost any of the basic characteristics that made it the pre-eminent economy in the world before the crisis. And I think we will return to that status as we recover.”

my comment:  This question and answer largely had to do with the pace of the economic recovery, and the causes as to why the pace appears slow.  Much can be said about the conclusions being drawn from the Reinhart and Rogoff book, and how they are being applied to our current situation.

As for Bernanke’s claim that “I am very confident that, in the long run, that the U.S. will return to being the most productive, one of the fastest growing and dynamic economies in the world” and that The United States “…hasn’t lost any of the basic characteristics that made it the pre-eminent economy in the world before the crisis.”  – I would have liked to have heard more of his thoughts on this issue.  Time will tell if this comes about;  I will be addressing the issue more in future posts.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1356.78 as this post is written


Reasons Behind Gold’s Ascent

The reasons behind Gold’s (as well as Silver’s) price movements is always complex.  There are a lot of factors involved.

Back on September 22, 2010, I wrote a blog post (on another site) titled “What is Gold ‘Telling Us'”? I have reprinted it below, as I think that it is important to recognize the potential factors involved.  Of course, this does not speak as to whether the rapid ascent is sustainable, or ultimate price targets.

Here is the post:

As Gold continues its rapid ascent, I think it is important to consider what such price action may be “telling us.”

Many classify Gold’s strong price action as that of an asset experiencing a “bubble” – and as such do not properly heed the fundamentals that may be driving its price action.   I have previously discussed whether Gold is in a bubble in this post.

While Gold may be advancing for many reasons, I would offer these (in no particular order) as among the top reasons for its ascent:

  1. Vulnerability of the US Dollar to a substantial decline, discussed in this article.
  2. Excessively low interest rates.
  3. Too much “money printing” – both now and projected in the future.
  4. Related to Points 1-3 above, an expectation of high future inflation.
  5. Large money flows into the Gold market, which is relatively (in proportion to other asset classes) small.
  6. A portent of an impending adverse economic event(s)
  7. Related to point 6 above, a desire to obtain a “safe haven”

I believe that the most important issue for those holding Gold is the following, as I mentioned in the “Is Gold Experiencing A Bubble?” post mentioned above:

“Perhaps the greater question should be whether various asset classes are currently experiencing bubbles, and whether Gold is just one of a few (or many) classes in such a condition. In effect, is Gold’s price strongly (positively) correlated to that of other asset classes, and if so, why?”



The Special Note summarizes my overall thoughts about our economic situation

SPX at 1347.99 as this post is written

Gold (June Gold futures) at $1512/oz as this post is written

Rising Input Costs And The “Profit Margin Squeeze”

In various past posts I have written of the challenges businesses face in pricing, given today’s economic environment.  One aspect that I mentioned in the December 16 post was how the PPI (Producer Price Index) growth was significantly outpacing that of the CPI.

Since that December 16 post, this PPI-CPI growth rate issue has been exacerbated.  Doug Short, on his blog, has posted a few interesting charts illustrating this concept from a long-term historical viewpoint.  Both of the charts shown below are from his April 21, 2011 post titled “Profit Margin Squeeze and Inflation Risk:  A Slight Improvement.”

First, here is a chart that shows the ratio, in the PPI, of Crude Goods to Finished Goods. The CPI is plotted below, in green.  This situation, as depicted, is problematical for firms, and the overall economy, on a number of fronts:

(click on chart images to enlarge)

Second, a chart that shows data from the Philadelphia Federal Reserve regarding Prices Paid vs. Prices Received, with Inflation (CPI) and Recession periods also shown:

I believe that what this chart depicts is notable in a variety of ways.  As shown, we are experiencing a unique situation, and are near historical peaks in both the index levels and the 12-month MA as shown.

I believe this data and its implications for businesses and the economy at large is of great concern.  Seeing how this situation resolves will be very interesting.  This is especially so given the vulnerability of the U.S. Dollar to a substantial decline, a topic that I have written extensively about.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1337.38 as this post is written

Comments On “Toward a Truly Free Market” Book

I’ve recently read the book Toward a Truly Free Market by John Médaille, a book that largely expounds on the economic concept of (Neo)Distributism.

I would like to preface my comments about the book with the following three points:

First, although I agree with various facets of Distributism – as it is presented it in the book – I would not consider myself a believer in the overall concept, for various reasons.

Second, there are various analyses and conclusions within the book that I don’t agree with.

Third, many who are familiar with micro or macroeconomics, might find much of the material in this book either unfamiliar, and/or wildly provocative, and/or heretical in nature.  This book is far from what is currently considered economic “convention.”

Notwithstanding these three points, this book is unique in many ways and is very notable.  I could write extensively about it, but for now I will summarize my thoughts.

The book focuses on what an economic system should be,  and uses a variety of arguments and cites economic theory spanning centuries.  It is critical of our current economic model on a number of fronts.

It also introduces various theories that are quite interesting and thought-provoking, and are especially relevant to our current economic situation.

As well, it offers many suggestions and examples of what a “Distributist” economy would look like.

In aggregate I view this book as very valuable.   I do believe that this book and its suggestions are (at the very least) worthy of serious contemplation.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1336.10 as this post is written

When Will Hiring Substantially Improve?

One factor that makes this unemployment situation so atypical, relative to past recoveries, is that while revenues, and particularly profits, have rebounded strongly, hiring has been (at best) anemic.  This is illustrated in the following chart, seen in the commentary of April 12:

One is led to wonder when hiring will accelerate at a substantial pace.  A recent Deloitte survey of CFOs (the Q1 “CFO Signals” report) and their opinions on factors impacting domestic hiring may be an indication.   On April 14, The Wall Street Journal RTE blog summarized the report’s finding on the issue in “CFOs: Revenue Boost Needed to Boost Hiring.” As seen in the story, “The quarterly survey released Thursday found that nearly half of respondents would seriously consider adding employees if revenues rose 20%, but few would be moved by a 5% increase. A 10% bump in revenue would only be a major hiring consideration for 11% of CFOs.”  The story also contains a table indicating other factors and their importance in hiring.

The Deloitte survey, if representative of the overall hiring environment, seems to indicate that a robust amount of hiring will not be occurring for a while – and that assumes that economic growth continues.

Another facet of this hiring situation – one that I haven’t heard mentioned, is the following:  Given that unemployment is so high despite the high level of corporate profitability,  what does the future hold for unemployment trends if / when corporate profitability declines?

There are many facets of this unemployment situation that go unmentioned.  Unemployment remains a very complex issue and is far more problematical than generally acknowledged.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1312.62 as this post is written

The April 2011 Wall Street Journal Economic Forecast Survey

The April Wall Street Journal Economic Forecast Survey was published April 11, 2011.  The headline is “Economists See Growth Accelerating Later in Year.”

I find the most notable aspects of this survey to be in the survey detail (spreadsheet), in which the economists judge factors that have recently adversely impacted the economy, and also predict whether President Obama will be re-elected in 2012.

The current average forecasts among economists polled include the following:


full-year 2011 : 3.2%

Unemployment Rate:

for 6/1/2011: 8.7%

for 12/1/2011: 8.3%

10-Year Treasury Yield:

for 6/30/2011: 3.67%

for 12/31/2011: 4.03%


for 6/1/2011: 2.9%

for 12/1/2011: 2.8%

Crude Oil  ($ per bbl):

for 6/30/2011: $103.71

for 12/31/2011: $98.14

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


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


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1305.14 as this post is written

Economically Counterproductive Policies – Incandescents

In the March 28, 2011 edition of Forbes, Steve Forbes wrote an article titled “Ban Bulb Lunacy.”

An online caption of the article reads “Next year the federal government begins the phaseout of traditional incandescent lightbulbs, giving us yet another enlightening example of politicians short-circuiting free markets.”

In the article, Steve Forbes says “This prohibition of the standard lightbulb is justified on the grounds that it will save energy. Well, if that were true, don’t you think consumers would figure it out for themselves?”

The article goes on to challenge the safety and comparative longevity of the CFLs vs. that of the standard incandescents.

My comments:

In my opinion, it appears, from an “all things considered” basis, that the regulatory “phaseout” of incandescent bulbs is a prime example of not only overregulation, but also (and more importantly) economically counterproductive policy.

The purported economic and environmental benefit of CFLs over incandescents seems at best nebulous, and, at worst, dubious – which some may view as duplicitous.  As Steve Forbes alludes to in the aforementioned quote, it would seem that if CFLs were as beneficial as claimed, consumers would heavily favor CFLs and incandescents would eventually (naturally) disappear from the marketplace.  Instead, we have regulation to force incandescents from the marketplace.

Milton Friedman spoke at length on the issue of harmful regulation in his “Free to Choose” television series, especially in Volume 7, “Who Protects the Consumer.”

I am sure that many people view this incandescent bulb phaseout as inconsequential, as it may seem trivial in the larger “scheme of things.”

If this represented an isolated example of economically counterproductive regulation, it wouldn’t be of great concern.  However, when such regulation proliferates, its existence should become a major issue of concern.  This is so for a number of reasons.

In the article “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’?” I mention the issue of policies that are inherently economically counterproductive.  Of these economically counterproductive policies, I wrote:

“There exist innumerable examples of these types of decisions; and their aggregate negative effect on the nation’s well-being (and strategic position) should not be underestimated.”


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1303.13 as this post is written

NFIB Small Business Optimism – March 2011

The March NFIB Small Business Optimism was released April 12.  The headline of the Press Release is “Hiring Up, But Optimism Down in March.”

The Index of Small Business Optimism declined 2.6 points in March, falling to 91.9.

Here are some excerpts from the report that I find particularly notable:

“The index is consistent with recession-level readings. The decline comes after several consecutive months of a slow but steady growth.”


“Uncertainty continues to cloud the future while the government is persistently tone-deaf to the needs of those who create jobs and wealth. Today’s recession-level reading is, all in all, a real disappointment.”


“Continuing the credit trend that NFIB has observed for months, the vast majority of small businesses (93 percent) reported that all their credit needs were met or that they were not interested in borrowing. The historically high percent of owners who cite weak sales means that for many owners, investments in new equipment or new workers are not likely to “pay back”. Lack of demand—and not the availability of credit—appears to be the stalemate that is holding back loan growth.”


“The “fire sale” is over and profits are badly in need of some price support. Note that these hikes started before higher gas and energy prices became a real issue except for transportation firms and those with delivery services. Plans to raise prices rose 3 points to a net seasonally adjusted 24 percent of owners, the highest reading in 30 months. With an improving economy, more and more of these hikes will “stick”.”

In conjunction with this March NFIB Small Business Optimism Survey, the CalculatedRisk blog on April 12 had three charts that depicted various facets (the Index itself; Hiring Plans and Poor Sales) of the Survey, as shown below:

(click on charts to enlarge images)


My previous posts concerning the business environment and challenges for small businesses were on January 12, and in 2010 October 18, and April 15.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1315.21 as this post is written