Current Economic Outlook: Tough and Realistically Optimistic [View article]
There is absolutely little reason to be optimistic about our prospects when we face continuing deleveraging, an aging population an expanding government footprint, a concentration of personal incomes and unsustainable deficits and debt. These are macro structural constraints on growth; not just headwinds.
Were this not enough, we have a decaying educational system (monopoly) dominated by union workers more concerned with tenure, benefits, not stigmatize failure, rewriting history to conform to progressive ideals and improving our political sensitivity to such matters as global warming and sexual orientation.
Given this, and not surprisingly, our collective skills in reading , math and science are suffering. Among the 30 some countries comprising the OECD, we rank around 17th while China places first. This will limit our ability to extend the reaches of science, limit our ability to harness science to technology and invest in innovation. Without constant innovation we are doomed as our wage scales prevent us from being competitive on a global scale.
Now lets get granular by quoting you: This recovery is not being fueled by dangerous speculation, but rather by accommodative economic policy and stimulus from the U.S. Federal Reserve. This has led to the stabilization of unemployment numbers, foreclosures, and lending, and this relative success should remain even with the absence of stimulus, especially when one considers that the markets have almost surely baked-in the fact that stimulus is about to dry-up.
You are kidding right? None of this is true. If we strip out lending by Student Loan Marketing Association, outstanding consumer credit at the end of 2006 was $2.32 trillion and April of the current year it was $2.05 trillion. Unemployment numbers have been greatly assisted by a decline in the rate of participation in the labor force and in May be we added 54K private sector jobs, well below the 125K needed to accommodate growth in the labor force. To put this in context, we can explore how long it will take to fill the job gap at different rates of job creation. If the economy adds about 208,000 jobs per month, the average monthly rate for the best year of job creation in the 2000s, then it will take 142 months, or about 12 years to restore unemployment where it was before the start of the great recession.
As to housing the picture is mixed. Mortgage delinquencies in the first quarter were down 174 basis points when compared to a year earlier although the percentage of U.S. mortgages in delinquency increased to a rate of 8.32% on a seasonally adjusted basis at March 31, up 7 bps from the end of 2010. Default and foreclosure activity may have improved year over year but higher frequency data suggest it may be on the uptick. And there remains that pesky little problem of 2 million REO homes that have yet to be dumped on the market.
Meanwhile, the central bank released its forecasts for lower economic growth after recent economic data pointed to a weakening economy. Companies boosted payrolls in May at the slowest pace since June 2010, Labor Department figures released June 3 showed. Autos sold last month at the weakest pace since September, retail sales dropped for the first time in 11 months and manufacturing grew at the slowest pace since September 2009. The S&P/Case-Shiller index of property values in 20 cities fell 3.6 percent in March from a year earlier, the biggest year-over-year decline since November 2009. The consumer price index rose 3.6 percent for the 12 months ending in May, the most since October 2008, as food and fuel prices drove the benchmark higher. So- called core CPI, the index excluding food and fuel, rose 1.5 percent during the same period, the most since January 2010. Because of this, real incomes in May of this year fell 1.6% yoy. Commercial real estate prices dropped 3.7% M/M and 13% Y/Y in April, according to a Moody’s index that is now 49% below its Oct. 2007 peak
Jim Chanos: We're Repeatedly Rewarding Failed Business Decisions [View article]
If we proclaim to support a free market economy, how does state intervention in particular sector of the economy constitute a success when in doing so it tramples upon property rights (those of bondholders) and takes on ownership of a private company for political gain?
Elizabeth Warren: GMAC Did Not Pose a Systemic Risk [View article]
She has also asked Geithner a number of other questions for which he had no answer, including how do we exit from GMAC and the interrelated question of how will GMAC repay taxpayers?
Along with green shoots, there is mounting evidence that the economic improvements noted across the globe are largely a result of coordinated global fiscal and monetary stimulus.
When the effects of these initiatives wear off and the dispensers of economic kool aid are broke or run-out of syringes, we will be facing the problems we have been dodging. Bank balance sheets are still plagued with toxic debt and there is very little by way of private demand.
With demand constrained by increased savings and structural unemployment, there is little to suggest there will be a rebound in corporate profitability when the outlook includes contined deleveraging, increased regulatory and tax burdens, lower growth and falling profit margins.
After inventory restocking and liquidity mopping-up, things could get worse very quickly.
Will 'Self-Preservation' Work After Decades of Fiscal Suicide? [View article]
Bernanke and Greenspan failed to anticipate the consequences of the latter's poicies and when the consequences became evident ...meaning he was staring at them....Bernanke misread the scale and severity of the problems.
Rather than allowing the economy rest, unwind and recover, political forces will force both congress and the Fed to pursue reckless policies in the empty hope of reviving a moribund economy. We are facing structural problems, long in the making, that require long term solutions designed to correct the problems while, simultaneously, establishing a new economic model.
As has been discussed before, the new model must be built upon increasing private investment and stimulating exports; the consumer driven economy is constrained by the need to liquidate high levels of personal debt. And administration policies, which are frightening when seen in the extreme, are further eroding consumer confidence, creating an adverse feedback loop.
Some of the steps we have taken were necessary but, in large, we have failed to visualize the new economic model and take steps towards realizing it. Most of the stimulus package should have been devoted to R&D, technology development and the creation of new industries with large export potential.
We did not do this, though, because this administration is so extreme in its thinking that it persists in placing special interests before national interests. Until this stops, we face grave risks.
The Case of the Dissident Chrysler Creditors [View article]
Here is a refinement to the basic argument that creditors can make:
[U]nder certain circumstances a debtor may sell all or substantially all of its assets without making the sale part of a plan of reorganization. Where a chapter 11 debtor proposes to sell its assets or business "outside of a plan of reorganization," creditors are entitled to notice of the sale and an opportunity to voice any objections they may have with the court. However, the sale will not be subject to the same creditor disclosure and voting rights attendant to a sale as part of a plan of reorganization. Moreover, the proposed sale will be subject to the less exacting "business judgment" standard of review. For this reason, some courts refuse to approve a proposed sale outside of a plan of reorganization if it appears that the transaction is really a "sub rosa" or "de facto" plan because the terms of the sale will necessarily dictate the provisions of any future plan.
Fed Considers GM Buy-In: Digging a Deeper Hole [View article]
An argument can be made that by the governement taking equity, it would make it easier for GM to force a restructuring plan on all other creditors in a bankruptcy because the Treasury’s secured loans give it a senior status.
Alternatively, the governement is uncertain of a bankruptcy outcome and wants to play a greater role in determining the ultimate outcome.
As the author notes, the idea of a company whose ownership is comprised of a state and a union does little to stir interest or enthusiasm, making the equity stake something less than marketable.
Why Obama Was Right to Demand Wagoner's Head [View article]
I am not apologist for Obama but he was running out of options.
Wagoner has continually been behind the curve and has been unable to effect or suggest policies to make GM viable in the long-term. Additionally, he lost credibility with the administration owing from delays or inability in submitting credible restructuring plans. Financial assumptions have been all over the board.
The task force ... said Monday that G.M. had to drastically pare the broadest lineup of products offered by any car company.
“G.M. has retained too many unprofitable nameplates that tarnish its brands, distract the focus of its management team, demand increasingly scarce marketing dollars, and are a lingering drag on consumer perception, market share and margin,” the task force said in its report.
GM has 60 days to force greater concessions out of its debt holders and other parties and to find new ways to deal with its shrinking market share.
Obvious to almost everyone is the need for GM to streamline its product offering while concentrating upon the most profitable unit sales with the highest growth potential. Instead of cutting eight brands down to four in the United States, G.M. may be left with Chevrolet and Cadillac.
Big Debt and Big Returns Could Be Spurring This Rally [View article]
Many of the companies with the highest debt structure are outpacing the market for the simple reason that investors believe Treasury, through CAP and the recently announced PPIP to purchase legacy assets and securities, will improve their debt and capital structure. In the eyes of some, they are not as bad as they look.
Current Economic Outlook: Tough and Realistically Optimistic [View article]
Were this not enough, we have a decaying educational system (monopoly) dominated by union workers more concerned with tenure, benefits, not stigmatize failure, rewriting history to conform to progressive ideals and improving our political sensitivity to such matters as global warming and sexual orientation.
Given this, and not surprisingly, our collective skills in reading , math and science are suffering. Among the 30 some countries comprising the OECD, we rank around 17th while China places first. This will limit our ability to extend the reaches of science, limit our ability to harness science to technology and invest in innovation. Without constant innovation we are doomed as our wage scales prevent us from being competitive on a global scale.
Now lets get granular by quoting you: This recovery is not being fueled by dangerous speculation, but rather by accommodative economic policy and stimulus from the U.S. Federal Reserve. This has led to the stabilization of unemployment numbers, foreclosures, and lending, and this relative success should remain even with the absence of stimulus, especially when one considers that the markets have almost surely baked-in the fact that stimulus is about to dry-up.
You are kidding right? None of this is true. If we strip out lending by Student Loan Marketing Association, outstanding consumer credit at the end of 2006 was $2.32 trillion and April of the current year it was $2.05 trillion. Unemployment numbers have been greatly assisted by a decline in the rate of participation in the labor force and in May be we added 54K private sector jobs, well below the 125K needed to accommodate growth in the labor force. To put this in context, we can explore how long it will take to fill the job gap at different rates of job creation. If the economy adds about 208,000 jobs per month, the average monthly rate for the best year of job creation in the 2000s, then it will take 142 months, or about 12 years to restore unemployment where it was before the start of the great recession.
As to housing the picture is mixed. Mortgage delinquencies in the first quarter were down 174 basis points when compared to a year earlier although the percentage of U.S. mortgages in delinquency increased to a rate of 8.32% on a seasonally adjusted basis at March 31, up 7 bps from the end of 2010. Default and foreclosure activity may have improved year over year but higher frequency data suggest it may be on the uptick. And there remains that pesky little problem of 2 million REO homes that have yet to be dumped on the market.
Meanwhile, the central bank released its forecasts for lower economic growth after recent economic data pointed to a weakening economy. Companies boosted payrolls in May at the slowest pace since June 2010, Labor Department figures released June 3 showed. Autos sold last month at the weakest pace since September, retail sales dropped for the first time in 11 months and manufacturing grew at the slowest pace since September 2009. The S&P/Case-Shiller index of property values in 20 cities fell 3.6 percent in March from a year earlier, the biggest year-over-year decline since November 2009. The consumer price index rose 3.6 percent for the 12 months ending in May, the most since October 2008, as food and fuel prices drove the benchmark higher. So- called core CPI, the index excluding food and fuel, rose 1.5 percent during the same period, the most since January 2010. Because of this, real incomes in May of this year fell 1.6% yoy. Commercial real estate prices dropped 3.7% M/M and 13% Y/Y in April, according to a Moody’s index that is now 49% below its Oct. 2007 peak
Jim Chanos: We're Repeatedly Rewarding Failed Business Decisions [View article]
Elizabeth Warren: GMAC Did Not Pose a Systemic Risk [View article]
A Durable Recovery? [View article]
When the effects of these initiatives wear off and the dispensers of economic kool aid are broke or run-out of syringes, we will be facing the problems we have been dodging. Bank balance sheets are still plagued with toxic debt and there is very little by way of private demand.
With demand constrained by increased savings and structural unemployment, there is little to suggest there will be a rebound in corporate profitability when the outlook includes contined deleveraging, increased regulatory and tax burdens, lower growth and falling profit margins.
After inventory restocking and liquidity mopping-up, things could get worse very quickly.
Will 'Self-Preservation' Work After Decades of Fiscal Suicide? [View article]
Rather than allowing the economy rest, unwind and recover, political forces will force both congress and the Fed to pursue reckless policies in the empty hope of reviving a moribund economy. We are facing structural problems, long in the making, that require long term solutions designed to correct the problems while, simultaneously, establishing a new economic model.
As has been discussed before, the new model must be built upon increasing private investment and stimulating exports; the consumer driven economy is constrained by the need to liquidate high levels of personal debt. And administration policies, which are frightening when seen in the extreme, are further eroding consumer confidence, creating an adverse feedback loop.
Some of the steps we have taken were necessary but, in large, we have failed to visualize the new economic model and take steps towards realizing it. Most of the stimulus package should have been devoted to R&D, technology development and the creation of new industries with large export potential.
We did not do this, though, because this administration is so extreme in its thinking that it persists in placing special interests before national interests. Until this stops, we face grave risks.
The Case of the Dissident Chrysler Creditors [View article]
[U]nder certain circumstances a debtor may sell all or substantially all of its assets without making the sale part of a plan of reorganization. Where a chapter 11 debtor proposes to sell its assets or business "outside of a plan of reorganization," creditors are entitled to notice of the sale and an opportunity to voice any objections they may have with the court. However, the sale will not be subject to the same creditor disclosure and voting rights attendant to a sale as part of a plan of reorganization. Moreover, the proposed sale will be subject to the less exacting "business judgment" standard of review. For this reason, some courts refuse to approve a proposed sale outside of a plan of reorganization if it appears that the transaction is really a "sub rosa" or "de facto" plan because the terms of the sale will necessarily dictate the provisions of any future plan.
Fed Considers GM Buy-In: Digging a Deeper Hole [View article]
Alternatively, the governement is uncertain of a bankruptcy outcome and wants to play a greater role in determining the ultimate outcome.
As the author notes, the idea of a company whose ownership is comprised of a state and a union does little to stir interest or enthusiasm, making the equity stake something less than marketable.
Let the bankruptcy court make the call.
Why Obama Was Right to Demand Wagoner's Head [View article]
Wagoner has continually been behind the curve and has been unable to effect or suggest policies to make GM viable in the long-term. Additionally, he lost credibility with the administration owing from delays or inability in submitting credible restructuring plans. Financial assumptions have been all over the board.
The task force ... said Monday that G.M. had to drastically pare the broadest lineup of products offered by any car company.
“G.M. has retained too many unprofitable nameplates that tarnish its brands, distract the focus of its management team, demand increasingly scarce marketing dollars, and are a lingering drag on consumer perception, market share and margin,” the task force said in its report.
GM has 60 days to force greater concessions out of its debt holders and other parties and to find new ways to deal with its shrinking market share.
Obvious to almost everyone is the need for GM to streamline its product offering while concentrating upon the most profitable unit sales with the highest growth potential. Instead of cutting eight brands down to four in the United States, G.M. may be left with Chevrolet and Cadillac.
Big Debt and Big Returns Could Be Spurring This Rally [View article]