Economic Data Galore

Posted by Ray on November 24, 2009 under Main | Read the First Comment

Today was packed full of economic data that was less than impressive and in some cases downright scary. As you already know GDP, as predicted, was restated down to 2.8% and is likely going to be pushed further down again by the time we get the next report. Most say that the GDP revision is no big deal because it is looking in the rearview mirror, but I see it as a big problem as the market was pushed up dramatically based upon that report and many hailed the recession over based on that number.

The reality is that the revision down shows, with absolute clarity, that the economy is weak and without the governments support we would have pushed a negative number. I will say the number would have been relatively flat, somewhere in the -.5 to -.1%, but nevertheless very much anemic and not reflective of this so called V shaped recovery. The consumer is also in rough shape and the consumer confidence number was certainly nothing to write home about, but hey let’s not let the facts get in the way of a great recovery story.

The housing data was very interesting especially if you like month old stale data, but the widely watched Case-Shiller Index was up a whopping .3% which gave everyone a reason to cheer this morning. Of course it is widely known that the reason for the increase was because of distressed home sales and the tax credit. That housing data was on top of the huge, seasonally adjusted, data on Monday showing a 10% jump in sales, but again it was seasonally adjusted and the jump was because of, guess what, distressed sales and the first time tax credit. I know, the tax credit was renewed and expanded which I am sure will do wonders for the estimated 25-35% of existing home owners who are underwater in their existing mortgages and the 17.5%, U-6 report, unemployed or underemployed in America, not to mention the 50% of Americans worried about losing their jobs or having their taxes hiked to unspeakable levels. Again, let’s not let the facts get in the way of a great recovery story.

The Fed minutes were released today, nothing too shocking in them, but the mere fact that the Fed is not willing to remove its balance sheet largesse or raising interest rates should be a huge red flag for everyone, but apparently it is not. I happen to agree that there is no immediate inflationary threat, I say that with some apprehension as oil and other commodities do indicate some inflationary pressure, I would not expect any interest rate hike for some time into 2011 or ever. Given our countries debt load do you really think we could ever raise interest rates? I don’t think so. We have $12T in total US debt, treasurydirect.gov which is counting backwards now for some reason, and out of the $7T in treasuries some $2.8T comes due next year.

Add another $1.4-$2T in new deficit spending, plus the next new stimulus to be announced soon, and the US has to raise some $4.8-$5T in debt next year, not including refunding. Based on that number and the current interest rates at 2.4%, or so, we cannot afford to raise interest rates because the debt service costs would cripple us and we are having a hard time placing longer term treasuries, just watch the auctions for proof. That means we will constantly have to be issuing new deficit debt at shorter maturities and rolling our old debt into <10 year treasuries. Soon we will have to be rolling $8-9T a year in new and old debt every year and that means we will not want to be paying a lot of interest on it. Even though the Fed is “independent” from political influence, which it is not (see quantitative easing for proof), it is my contention that it has been told that it has to keep rates low forever. Well, maybe they weren’t told, Ben is no dummy after all, it is really just a math thing.

This leads me to believe that the dollar will probably stay weak for sometime into the future, like forever. I do think that we will see a spike in its value in the near future simply because it is oversold and the global economy is not that rosy, see China and the bubble talk from leading real estate moguls. If China does pop, which it probably will, then the dollar will see its day in the sun for sometime leading equities lower, commodities lower and treasuries higher. As I have said for some time now, stocks, bonds and commodities cannot all be right yet they are all going up at the same time, that is not a good sign, sorry.

Longer term the dollar will go much lower and here is the really scary thing, the Yen is outperforming the dollar. Japan has lower credit ratings than the US, they have an older population and higher debt to GDP ratios, but we are following right behind Japan fairly quickly in all categories. Based on that information how in the world can the Yen be doing so well, comparatively, to the USD? That should worry people, but it does not. Mish Shedlock actually foresees a crisis in the Yen before the USD, but if that is the case why is it doing better than the USD? Mish is no dummy and I hold him in high regards, but the signal I am getting is that we are in bigger trouble than Japan. I base that on a few facts, they save money, are net exporters and creditors, we do the exact opposite. Therefore, if the dollar strengthens and commodities get hit, buy gold heavily.

At the rate the US is going we are heading for fiscal disaster and we have an increasingly bolder President and Congress who seem to endorse the bankruptcy of the republic. The previous administration is equally as guilty as they did not see a spending bill that they did not like either, but the primary difference is we were promised changed, transparency and real change. We received none of what we were promised and from my vantage point the economy, which is what Americans are really looking at, is getting worse not better.

In my neck of the woods Penn Traffic just went into chapter 11 and will promptly be firing 5,000 people, they were a grocer so go figure that a grocer went out of business, and Adidas is moving 100 jobs out of this area for foreign shores, those are not green shoots. Only now does the government decide to make jobs a top priority, but I thought that is what the $797B stimulus bill was for? I guess I misunderstood what they were saying when they passed that bill at the dead of night on that Friday in February. Never fear though as the government is here to save the day with another estimated $500B jobs bill that will more than likely be passed in early January 2010, just in time for the BLS announcement of the overstatement of some 800,000 jobs between January and March of 2009.

My point is that is things were truly better than we would not even be having this discussion. Unemployment would not be climbing towards 11% and firms like Johnson and Johnson would not be trimming their work force by 6%. The Federal Reserve would not be keeping rates at 0% and continuing quantitative easing, which is monetizing the debt no matter how you cut it.

Foreclosures would not be increasing and the mortgage modification programs would not be failing, see CNBC Reality Check for the story how people still fall behind after they modify their mortgage, the FDIC would not be in the red by $8B, there would not be 550 banks on the FDIC troubled bank list (an increase of 140 banks since last quarter), banks would not be worrying about bringing on off balance sheet SIV’s into the light, and the Fed would not fear anyone looking at their books. If all were fine, none of those things would be open for discussion, but they are and we are talking about them. As I have also said many times before, it is a year later and what has really changed? Banks still hold the same bad debt on their books, but the accounting rules have changed, that’s it and everything else is the same which means we still got major problems.

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Tags: banks, economic data, economic recovery, federal reserve, financial crisis, foreclosures, national debt, unemployment

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