CNN reports:
The job market is off to a terrible start this year, with companies announcing more than 80,000 job losses so far, in one of the most painful symptoms of the ongoing recession.
Circuit City Inc. is the biggest culprit of 2009. The bankrupt retailer said on Friday that it is shutting down because of dried-up consumer spending and liquidating its 567 U.S. stores, dooming some 30,000 jobs.
Going Global
Help Jake Understand: Is it Possible that a Country Will Leave the Eurozone?
The Irish Dr. Doom... or Just an Exaggerating Economist?
Irish Home Prices... In Gold
Chinese Exports Plunge
Economic Data
Consumer Price Index (December)
Inventory / Sales Ratio Spikes
Deficit as a Percent of GDP
Producers Price Index Breakdown (December)
Retail Crushed
U.S. Trade Deficit Down Most in 12 Years
Wholesale Trade: Sales Cliff Dive
Recession Defined... Capacity Under-utilized
Bailout / Stimulus
Stimulus Projected to Save 3.675mm Jobs... 3mm Too Little.
Draft of $550 Billion in Government Stimulus Spend
First Third of TARP Could Cost Taxpayers $64 Billion
Banks / Corporations
JP Morgan 'Fee Income' by Business Segment
Alcoa $1.19 Billion Loss vs, Commodity Markets
Oil Tankers are a Banks Best Friend
Credit
Loose Credit and Autos
Auto Bubble Breakdown
Receipts Down, Outlays Up = Soaring Deficit
Fixed Mortgage Rates at Less than 4.5%
WSJ reports:
CBO said the $64 billion figure generally represents the difference between what Treasury paid for the investments or lent to firms and the market value of the transactions. This difference, called the “subsidy rate”, was 26% for the first third of the TARP funds.
There is an interesting thread over at Politics.ie that links to a post showing UK/London/Scotland home prices in 'ounces of gold' and requests:
I love to see a chart on Irish house prices - anyone?Here it is... less of a bubble than London, but more than Scotland.
According to Wikipedia, contango is:
a term used in the futures market to describe an upward sloping forward curve (as in the normal yield curve). Such a forward curve is said to be "in contango" (or sometimes "contangoed").
Formally, it is the situation where, and the amount by which, the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery.
A contango is normal for a non-perishable commodity which has a cost of carry. Such costs include warehousing fees and interest forgone on money tied up, less income from leasing out the commodity if possible (e.g. gold). The contango should not exceed the cost of carry, because producers and consumers can compare the futures contract price against the spot price plus storage, and choose the better one. Arbitrageurs can sell one and buy the other for a risk-free profit too.
Morgan Stanley is seeking a supertanker to store crude oil, joining Citigroup Inc. and Royal Dutch Shell Plc in trying to profit from higher prices later in the year, four shipbrokers said. The bank has yet to find a suitable vessel, said one of the brokers, all of whom asked not to be identified because the information is private. Carlos Melville, a spokesman for Morgan Stanley in London, declined to comment. “There’s a lot of people looking for storage,” Denis Petropoulos, London-based head of tankers at Braemar Shipping Services Plc, the world’s second-largest publicly traded shipbroker, said by phone.
As long as storage is available at Cushing -- and given the steep rise in inventories reported by the Energy Information Administration today, storage clearly has been available -- excess oil will go to where it is easiest to take advantage of the contango structure in the market. The eye-popping contango of almost $13/b between February and August WTI is a direct result of the overhang of oil on the market, and the fact that there was available storage at least through last week brought the world's excess oil overhang.
With 32.182 million barrels now sitting in Cushing, the market appears poised to test the limits of storage capacity there. So it's WTI that's reflecting what is going on in the world: the collapse in demand, oversupply and a resulting enormous contango that is encouraging storage. On this one, WTI is ahead of the curve, not behind.
BLS details:
The CPI-U decreased 0.7 percent in December, the third consecutive decline. The index is now only 0.1 percent higher than in December 2007. Declining energy prices, particularly for gasoline, again drove most of the decline. The energy index declined 8.3 percent in December. Within energy, the gasoline index fell 17.2 percent and accounted for almost 90 percent of the decrease in the all items index. The index for household energy declined 0.7 percent. Excluding energy, the index was virtually unchanged for the third straight month. The food index declined 0.1 percent in December, the first decrease since April 2006, as many meat, dairy, fruit, and vegetable indexes decreased.Contribution
Felix at Market Movers details those losses by JP Morgan that reduced their profit (still impressive given the environment - if you believe the #'s) to $702 million:
Interestingly, the bulk of those losses -- $2.9 billion -- came from writing down the investment bank's leveraged loans. During the boom years, it was an article of faith that investment banks needed huge balance sheets, because no one would use their M&A advisory services if they couldn't get cheap loans at the same time.But looking at the scale of these losses, it seems clear that no amount of M&A advisory fees could make up for them: JP Morgan would have been better off financially just simply axing its M&A department altogether.Breaking out JP Morgan's 'Fee Income' by business segment, I am surprised at how well most have done.
A draft of how ~$550 Billion of the $850 Billion stimulus has been released (hat tip How the World Works).
Source: Committee on Appropriations
I must admit that I am no expert in the field of International Economics (in fact I do not understand it), but I am trying to grasp some of the consequences that a single currency (either through the adaption of the Euro or a fixed exchange rate) has on a country when it limits that country's monetary policy. For all those that understand this topic much better than I, PLEASE POST AND HELP ME OUT.
Point (the case for a Eurozone breakup)
Ben Bittrolff at the Financial Ninja kicks off the discussion:Tuesday night, I saw an eerily similar post over at Across the Curve. Before diving in, a little background on the ERM (European Exchange Rate Mechanism) which is discussed below, via Wikipedia.Abandoning the USD in favor of the higher yielding Euro is a dangerous trade. The risks of the Euro unraveling are growing larger by the day. Recent volatility in the foreign exchange markets should definitely raise eyebrows. In the end, the USD is still the undisputed reserve currency of the world. Spain and Italy are the most likely candidates for sovereign default.
The Short View: “If the eurozone could find a way to deal with a member country’s national default, that might confirm the euro’s status as the world’s next reserve currency. But if a solution could not be found, and a country exited, any such ambition would be over, says John Authers.”
The European Exchange Rate Mechanism, ERM, was a system introduced by the European Community in March 1979, as part of the European Monetary System (EMS), to reduce exchange rate variability and achieve monetary stability in Europe, in preparation for Economic and Monetary Union and the introduction of a single currency, the euro, which took place on 1 January 1999.In a nutshell, before the ERM (or European Monetary Union “EMU”, which in its third stage introduced the Euro as the real currency), a country controlled their own monetary policy and could devalue their currency when the situation deemed appropriate. No longer… as a result we see a growing divergence between the haves and have-nots. To Across the Curve:
Belgian 10-year spreads over Germany have widened 16 bp over the past five days in line with Spanish spreads. Dutch spreads have widened 10 bp over the same period, in line with Italy and in sharp contrast to the 2bp widening by France. On a three month basis, Belgian spreads have widened 37bp, also in line with Spain and vs. 32 bp for Holland and 21 bp for France. As we noted yesterday, part of the widening of Spanish - and also Belgian - spreads may reflect liquidity premiums but, at least for Spain, also likely reflects competition. Prior to ERM , a devaluation of the Spanish currency enabled the country to boost its competitiveness.It appears to me that the ERM and/or the EMU has limited the ability of a country, such as Spain, to react to the specific situation occuring in their economy, as each country is forced to accept the monetary policy best suited for the union as a whole. In other words (back to Across the Curve):
ERM membership blocks / eliminates that policy action and risks a deeper economic crisis.Spain, which is under severe economic strain, cannot respond with a devaluation of their currency and a flooding of liquidity, as they need to move forward with a policy best meant for the larger powers (i.e. Germany), which have not experienced the same home boom / bust and are still worried about reigniting inflation after all they went through in the 1930's.
Restrictions on foreign financing have collapsed Spanish housing and consumer spending booms and sent unemployment to the highest rate in the European Union at 13.4 percent in November. S&P saw the risk of prolonged weak growth after the Spanish economy entered its first recession in 15 years during the fourth quarter.Counter-Point (no breakup)
Three issues are being linked in this passage. The emergence of high levels of sovereign default risk premium differentials between different eurozone member states, the external value of the euro and the likelihood of the eurozone breaking up. There is no self-evident link between these three issues. The first is neither necessary nor sufficient for the second or the third. More than that, the threat or reality of sovereign default by a eurozone member state is much more likely to reduce that country’s incentive to leave the eurozone than to increase it....Why?
Would a eurozone national government faced either with the looming threat of default or with the reality of a default be incentivised to leave the eurozone? Consider the example of a hypothetical country called Hellas. It could not redenominate its existing stock of euro-denominated obligations in its new currency, let’s call it the New Drachma. That itself would constitute a further act of default. If the New Drachma depreciated sharply against the euro, in both nominal and real terms, following the exit of Hellas from the eurozone, the real value of the government debt-to-GDP ratio would rise.Go read the whole thing, but to say I'm uncertain would be an understatement...
On Tuesday, I posted a chart showing the growing budget deficit and received this request:
Better yet, show outlays and receipts as % of GDP and take it back to 1945.Unfortunately, I only was able to dig out budget data going back to the early 1980's, but it does have an interesting story to tell. Over the past 12 months, the deficit has grown to ~6% of nominal GDP (for December 2008 I assumed nominal GDP decreased -1% QoQ).
Forbes details the latest Inventory / Retails Sales figures:
The Good:
Business inventories fell 0.7% in November, a bit more than the consensus 0.5% decline and the largest drop since November 2001. IFR was expecting a 0.8% drop.The Bad:
Inventories were down in all major sectors but fell 1.3% among retailers, the biggest drop since July 2005. Auto dealer inventories fell 1.7%, so total retail inventories excluding auto dealers fell 1.0%, lower than the overall retail inventory drop but still a record.
November business sales fell a record 5.1%, and are down 8.9% from November 2007. The prior record was October's 3.9% decline.What it Means:
CNN details the horrific results:
Below is a chart of December '08 vs. December '07 (not seasoanlly adjusted)."Holiday sales posted the biggest decline on record falling around 3.5%," wrote Anika Khan, an economist for Wachovia. "Sales have been primarily driven by extensive discounting which is hurting retail profit margins."
Some of the decline in sales can be attributed to falling prices. The figures are not adjusted for price changes, but they are adjusted for seasonal variations. Economists believe consumer prices fell 0.8% in December; U.S. inflation data will be released on Friday.
Retail sales last month were down a record 9.8% compared with December 2007, the Commerce Department's data showed. Sales excluding autos fell a record 6.7% in the past year.
Googling the following term 'Loan to Value Auto' and the first applicable result (3rd overall) is a page at RoadLoans. This site provides an explanation as to what Loan to Value "LTV" means, using an example of an individual borrowing more than the value of the car.
LTV is a calculation that shows the amount you borrow as a percentage of the book value of the vehicle* you are purchasing. For example, if you borrow $15,000 on a vehicle with a value of $13,000, the LTV would be 115.3% ($15,000 divided by $13,000).And that is exactly what happened. In September 2006, the AVERAGE loan was larger than the value of the underlying vehicle for the first time on record, which in turn helped the auto companies sell vehicles to those who probably couldn't afford the actual car and led to strong business at the autos (GM stock doubled between March 2006 and November 2007).
Professor Roubini has nothing on Professor Morgan Kelly from the University College Dublin. Back in February 2007, Prof. Kelly predicted:
The expected fall in average real house prices is in the range 40 to 60 per cent, over a period of around 8 years. Such a fall would return the ratio of house prices to rents to its level at the start of the decade.By January 2008, Professor Kelly felt this 50% decline was overly optimistic:
Writing in this newspaper a year ago, I suggested that, in the light of past property booms abroad, Irish house prices were at risk of falls of around 50 per cent in real terms. At the time I imagined, again based on what had happened elsewhere, that selling prices would stabilise at their peak values for a year or two, and then fall slowly by a few per cent a year for up to a decade.And now? According to the Irish Times (bold mine):
My forecast has turned out to be wildly optimistic.
Ireland will see more demolition than construction of houses over the next decade, as the economy struggles to recover from the collapse of the housing market and the emergence of “zombie” banks, UCD economist Morgan Kelly told the conference.
In a presentation that drew several collective intakes of breath, Mr Kelly predicted that house prices would fall by 80 per cent from peak to trough in real terms.
CNN Money reports:
The federal budget deficit expanded by $83.6 billion in December, the Treasury Department reported Tuesday, bringing the total deficit for the first three months of the 2009 fiscal year to $485.2 billion. By comparison, the budget deficit for all of fiscal year 2008 was $455 billion. In fiscal 2007, it was $161 billion.
Paul over at Infectious Greed points out the strange reaction to this morning's trade data.
note: the U.S. has a trade deficit for goods and a trade surplus for services, thus the chart below shows a drastic reduction in net imports for goods and a slight increase in net exports for services.Trade data today was one of those outrageous sorts of crazy thing that happen lately, and yet causes no-one to blink an eye. We had a nearly 30% drop in the U.S. trade deficit, one of the largest percentage drops of all time, and yet it really didn’t matter in some sense.
Why? Because both imports and exports tumbled too. There was a 12% (!) drop in imports -- almost $25-billion, off the top. Admittedly, that was driven by both oil prices and declining consumer demand, but it was eye-popping. And exports fell too, but not on the same scale, with them tumbling a mere 6%.
Bloomberg reports:
Threats to the world economy are already building. Chinese central bank governor Zhou Xiaochuan said Jan. 12 that there are downside risks to the government’s 8 percent growth target for this year. Chinese exports fell for the first time in seven years in November, imports plunged and industrial output gained the least in almost a decade. Economic growth may slow to 7.5 percent this year, the World Bank estimates.
Update: Tom O points out in the comments that EconomPic is slacking with regards to timely info, which I will agree with (meant to post this last week...)
A little behind the time. Conforming fixed 30-year mortgage rates in CA for prime borrowers have been around 4.5% at a point (under 4.7 APR)for the last week or so.Per Bloomberg:
The largest U.S. banks are starting to offer fixed home loans below 5 percent after the government began buying mortgage securities to bolster the housing market.Felix of Market Movers even shows a 4.375% 15-Year rate from Chase.
JPMorgan Chase & Co. is advertising 30-year mortgages as low as 4.75 percent on its Web site, Wells Fargo & Co. has an offer for 4.875 percent and Bank of America Corp. has rates at 5 percent. The offers are for borrowers with excellent credit who put 20 percent down.
I'll file this as a "better late than never post". Reuters reported last Thursday:
U.S. wholesale inventories fell in November while sales posted a record decline, a government report said on Friday.Looking at the rolling 3-month change in wholesale trade sales, we see levels down almost 50% on an annualized basis.
The Commerce Department said U.S. November wholesale inventories fell 0.6 percent after a revised 1.2 percent decline in October. November wholesale sales plunged a record 7.1 percent after falling a revised 4.5 percent in October.
Wall Street economists surveyed by Reuters expected wholesale inventories to fall 0.8 percent in November. A month earlier, the department reported October inventories were down 1.1 percent while sales fell 4.1 percent.
Consumer borrowing dropped by a record $7.94 billion in November, a Federal Reserve report showed on Thursday, the latest evidence that households were unwilling or unable to take on more credit.
That was the biggest decline since the data series began in January 1943, and was far steeper than the $0.5 billion dip that economists polled by Reuters had expected.
The November decline represented a drop of 3.7 percent, the largest percentage fall since January 1998, when it was down 4.3 percent.
Alcoa Inc., the world's third-largest aluminum company, said Monday it lost $1.19 billion during its fourth quarter as prices and demand for the metal plunged in a troubled global market. Alcoa's loss highlighted the impact of the weakening world economy on key aluminum markets, such as the construction and auto industries. Prices of the metal, used in everything from cars and aircraft to window frames and beer cans, have fallen steeply along with other commodities since mid-2008.
Cheap financing led to soaring loans.
The same chart with the financing rate axis reversed shows the strong correlation between the financing rate and size of the historical loan value.
This created an environment in which the consumer could borrow more, but pay the same amount (i.e. cheap financing meant monthly payments stayed relatively flat after accounting for inflation).
This has unraveled in recent months as consumers not only realized they didn't need a new car every 30,000 miles, but they also found it difficult accessing cheap credit as lenders reigned in lending (i.e. GMAC refused to lend to any borrower with a FICO score under 700). The obvious result... auto sales collapsed, which in turn led to the GMAC bailout to pump the bubble back up (per PoAC):
At the start of last week, the U.S. Treasury bought $5 billion in GMAC stock and loaned GM $1 billion to invest in GMAC Financial Services LLC.Source: Federal Reserve
The next day, GMAC announced zero percent financing on some models of GM cars and doubled the number of potential buyers qualifying for loans.
Christina Romer and Jared Bernstein have released projected jobs created / saved due to the Obama stimulus plan... a cool 3.675 million. The charts below show where these jobs are projected to come, by sector and by method (i.e. direct or indirect).
The most jobs, not surprisingly, are in construction. Other top sectors include retail (from stimulating consumption), leisure (gotta do something when laid off right?), and manufacturing.
Table 2:
How? Well, the majority are expected to be indirectly created not from the plan itself, but by the recycling of dollars / demand created from those created directly. Projections are for state relief (i.e. fund projects that would otherwise be cut) to save / create the most, followed by the protection of those jobs vulnerable in the downturn, and tax cuts.
Table 5:
The question is obvious... is this enough? According to Christina Romer and Jared Bernstein's "R/B" own conclusion:
Here’s one way to look at it: R/B show the effects of the plan rapidly fading out during 2011. Yet at the end of 2011 the unemployment rate is still 6.3%. Meanwhile, the CBO estimates the natural rate, aka “full employment,” at just 4.8%. Why does the plan go away with the job undone?In other words, R/B and Paul all conclude that the plan needs to be large enough to offset the jobs lost, but R/B themselves project that it won't. By their own analysis, employment is expected to rise to 9% with no stimulus. Comparing employment figures from December 2007 (unemployment at that time was 4.8%, which equals the CBO "full employment" level) with the projected employment figures for 2010 using R/B's 9% unemployment figure, I project the those unemployed to rise 6.7mm from December 2007. This is 3mm higher than the number of jobs the stimulus plan is projected to create / save (the difference between the loss in employment and gain in unemployment is the population growth) or to be blunt, not enough.
Employment
Unemployment Way Worse than 7.2% Due to Birth / Death Model
Broader Unemployment to 13.5%
Employment by President
Less Educated Hurt More... Everyone Unemployed Longer
Additional Employment Breakdown (December)
Asset Classes / Returns
The Good / The Bad: Time to Buy Equities?
The Ugly: P/E Multiple
Are Treasuries Really in a Bubble?
Long Bonds / Short Equities Redux
Huge Mortgage Rally... Thanks Government!
Another Post on Swaps????
2008 Hedge Fund Breakdown... Where's the Hedging?
Economic Data
Same Stores Sales... Down, but Not Out
ISM Services (December)
Auto Sales Continue to Crumble
Construction Spending November
Bailout Nations
Federal Reserve Bank Credit Down $125 Billion
Bank of England Cuts to Lowest Rate Since 1694.
Budget Deficit... Overly Optimistic and Still Ugly...
Gold
Fun with Gold
Global Demand for Gold on the Rise
Housing
Forget the Term Foreclosure, this is More Like Fiveclosure
I understand this is not completely due to GB II (the business cycle dominates a lot of this), but...
WSJ:
President George W. Bush entered office in 2001 just as a recession was starting, and is preparing to leave in the middle of a long one. That’s almost 22 months of recession during his 96 months in office.
His job-creation record won’t look much better. The Bush administration created about three million jobs (net) over its eight years, a fraction of the 23 million jobs created under President Bill Clinton’s administration and only slightly better than President George H.W. Bush did in his four years in office.
Back in October, EconomPic Data presented some amazing data that showed there had been no equity premium over the previous 11 3/4 years (i.e. no excess return for equities over bonds). With the continued sell-off in equities and a rebound in credit markets, the Lehman Barclays Capital Aggregate Bond Index has now provided an equal return to the S&P 500 over the PAST 19 YEARS INCLUDING REINVESTED DIVIDENDS / COUPONS!
Phew... I think my unemployment analysis is over. Here is a recap:
Less Educated Hurt More... Everyone Unemployed Longer
Employment Breakdown (December)
Unemployment Way Worse than 7.2% Due to Birth / Death Model
Broader Unemployment to 13.5%
The Birth Death Model once again overstates employment. In other words, things are a lot worse than the 7.2% rate presented to us. Per The Big Picture:
Since 2003, the B/D adjustment has been part and parcel to BLS' Current Employment Statistics (CES) program, the official measure of US employment. In brief, the Birth Death adjustment imagines (hypothesizes) how many jobs were created by companies too new and/or too small to participate or be found by CES. The model attempts to create what is perceived as a BLS error at the start of any recovery, when many new jobs are created but missed by BLS.
Some good news ahead of the bloodbath that will be reported at 8:30 ET this morning... Calculated Risk reports:
The Federal Reserve released the Factors Affecting Reserve Balances today. Total assets declined $125 billion to $2.14 trillion. This is a little improvement ...
According to CNN Money:
Despite a startling miss by Wal-Mart Stores Inc. (WMT), overall December same-store sales are tracking ahead of analysts' projections. Virtually all retailers have posted sales drops from a year ago, but for almost two-thirds of them the decline wasn't as much as expected, according to data tracker Retail Metrics.
FT reports:
The Federal Reserve on Monday kick-started its latest unconventional programme to boost the US economy, this time targeting mortgage-backed securities to help the slumping housing market, reports Reuters. The Fed plans to buy back as much as a ninth of outstanding, mortgage-backed bonds sold by mortgage giants Fannie Mae, Freddie Mac, and Ginnie Mae. The aim is to encourage buyers to return to the housing market or cut payments on existing home loans. The New York Fed began buying MBS guaranteed by Fannie, Freddie and Ginnie on Monday, part of a programme of as much as $500bn.
Bloomberg reports:
The Bank of England cut the benchmark interest rate to the lowest since the central bank was founded in 1694 as policy makers tried to prevent the credit squeeze from deepening Britain’s recession.
The Monetary Policy Committee, led by Governor Mervyn King, trimmed the bank rate by a half point to 1.5 percent. The result matched the median forecast of 60 economists in a Bloomberg News survey. The pound rose against the euro and the dollar.
