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HomeThe Tale of Two Economies
Posted by Larry Doyle on April 5th, 2011 8:16 AM |
What does our economic future hold? Great question, right?
Is our economy truly rebounding as much as our equity markets may portend or are we riding high predominantly due to government stimulus similar to an economic anabolic steroid? Is our future as bleak as the numerous and sundry doomsayers would proclaim? Does it appear as if our economy has a split personality or is operating in two different realms? Do you often wonder what others—especially those in Washington—may be seeing if the economic landscape in your backyard remains very challenging?
I continue to believe our overall economy is operating and will continue to operate with a ‘walking pneumonia’ type condition. The massive debt burdens at all levels of our economy continue to serve as a drag and inhibit any sort of truly robust rebound. Let’s navigate and take the pulse of Rick Davis of Consumer Metrics Institute which captures real time discretionary online consumer activity. (more…)
How Long Will ‘Walking Pneumonia’ Economy Last?
Posted by Larry Doyle on July 20th, 2010 6:28 AM |
I have told many people that I equate our current economic situation to a serious case of ‘walking pneumonia.’ If you have suffered from that dreadful malady, as I have, you can appreciate my sentiments. While we are going to live, and will move on from our current condition, the question everybody wants to know is how long will this sluggish, sickening episode last?
I wish I was so prescient as to be able to pinpoint the month and year when our economy may return to real vitality. I am neither that smart nor that egotistical. I do strongly believe, though, that we are looking at a number of years of continued underperformance. (more…)
FDIC “Kicks the Can”
Posted by Larry Doyle on June 24th, 2010 9:31 AM |
How secure do you feel about your bank deposits? They are insured, right? Well, how secure would you feel about your health insurance if your provider was not collecting badly needed premiums?
I am not pulling any fire alarms, but a recent announcement from the FDIC in regard to its insurance premiums collected from depository institutions speaks volumes about the current state of our banking system and our overall economy.
Recall that the FDIC’s insurance fund was exhausted late last year (Sense on Cents commentary: FHA and FDIC Getting Ready to Ask Uncle Sam for a Bigger Allowance). To replenish its fund, the FDIC had banks prepay estimated assessments of $45 billion, and also imposed higher premiums to rebuild the fund.
While Wall Street banks were in a position to pay out approximately $140 billion in 2009 bonuses, we now learn that the banking system is not in a position to begin paying the higher premiums to the FDIC. (more…)
Consumer Metrics Institute: Double Dip Mild, but Prolonged
Posted by Larry Doyle on May 27th, 2010 6:54 AM |
Is the economy slipping into a double dip or has it already slipped and we just need to wait a few months for the mainstream media to hopefully report on it?
Clearly, our domestic and global economies are very fluid and subject to serious fluctuations given the massive amount of government intervention, but where can we go to receive a real-time look at the economy?
Let’s review the work of Sense on Cents Hall of Famer Rick Davis of Consumer Metrics Institute. Recall that Rick and his colleagues capture and review a wealth of consumer retail data across ten sectors of our economy on a ‘real time’ basis. While analysts are downstream assessing developments with production, Rick and team are way upstream assessing what the consumers are doing NOW. Current consumer activity is highly correlated with GDP out 17-18 weeks. Yes, we are getting a sneak peek at next quarter’s GDP now. Amazing stuff.
What does Rick see and what does he project? Let’s navigate. (more…)
Front End Springs a Leak
Posted by Larry Doyle on June 5th, 2009 4:57 PM |
In a manner of speaking, the management of our economy has been nothing short of a major overhaul of a tired old ship. When the tide went out, the base of our ship was exposed as being filled with holes.
Little did we know at the time, but through many of those holes a number of “pirates” were running off with a whole lot of booty. In the process, many market participants riding along on the main deck were thrown overboard by the economic storm that hit our economy and markets over the last two years.
We do not have the luxury of bringing our ship into port for an overhaul. We have had to continue to sail this ship while trying to repair it. In that spirit, by necessity we have had to add significant ballast (liquidity) in our hull. In so doing, we need to recognize that the ballast can itself be inflammatory if the engine generates a spark.
In purely economic terms, this morning’s non-farm payroll number of -345k jobs was a hint of a spark. While various sectors of the market gyrated today, the front end of our ship, that is the front end of our yield curve, sprung a serious leak. How so? Interest rates on short term Treasury notes increased a DRAMATIC 35 basis points. Why?
Traders are already pricing in an expectation that the Federal Reserve will be forced to increase the Fed Funds rate prior to any hint of inflation or even the expectation of inflation gains a foothold. Bloomberg sheds color on this likelihood, Traders Begin to Speculate Fed Will Need to Tighten:
Traders are beginning to price in expectations the Federal Reserve will raise interest rates this year as the recession shows signs of abating.
Federal-funds futures contracts on the Chicago Board of Trade show a 70 percent probability the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by November after a report today showed the U.S. economy shed the fewest jobs in May in eight months. Rate-increase odds were 27 percent yesterday.
The Fed cut the target rate to the record low range of zero to 0.25 percent in December as the economy lapsed into the worst recession in decades. President Barack Obama and Fed Chairman Ben S. Bernanke have committed $12.8 trillion to thaw frozen credit markets and ramped up government spending to revive growth. The Fed last raised borrowing costs in June 2006, when policy makers pushed the rate to 5.25 percent.
Fed governors and Fed chair Bernanke now face a serious quandary. Economic data will remain decidedly weak. Unemployment will continue to increase. Consumers are going to remain strapped. Corporations will face challenges. Municipalities will encounter an ongoing decline in tax revenues. Nobody is going to truly feel like the economy is improving to the point that the Fed should even think about increasing interest rates. Then why is the market starting to price that reality into the market? Let’s go back into the hull.
The bowels of our ship are flush with liquidity and given any sort of traction in the economy, the velocity and growth in the money supply will drive inflation.
What is Big Ben and team to do? The market is raising interest rates on him rather than his raising interest rates on the market. In the process, a very fragile economy will now be forced to deal with higher interest costs along with anemic growth.
What do I see on our economic horizon? In my opinion, today’s price action took us in the direction of the island known as Stagflation.
Please share your thoughts and comments.
LD
Economic Update: Jobless Claims and Producer Prices
Posted by Larry Doyle on May 14th, 2009 10:42 AM |
Economic data released this morning included Initial Jobless Claims and Producer Price Index. Let’s dive right in!!
Initial Jobless Claims rose to 637k from last week’s reading of 601k, which was revised to 605k. The expectations for this week’s claims figure was 611k so the reading is disappointing as far as looking for stabilization within labor.
I am not surprised, though, for a few reasons:
1. we know there are going to be layoffs coming in the automotive industry. In fact, a large percentage of the increased unemployment filings came from states with heavy automotive exposure, especially Illinois.
2. as I reported in last Friday’s May Unemployment Report:
The fact that temporary government workers are factored into overall employment, in my opinion, is stretching the integrity of the report.
Thus, I am not surprised to see this week’s claims report higher than expected and I expect subsequent revisions to show higher claims as well.
In regard to the Producer Price Index, it was reported as an increase of .3% and without the volatile food and energy components as an increase of a mere .1%. No big deal, right? Well, it’s no big deal as long as you don’t eat. For those of us who actually look to consume food on a regular basis, this report is very troubling. Why?
Prices of food products rose 1.5%!! Including a rise of 43.7% for eggs, 5.2% for vegetables, 4.5% for beef, and 2.5% for pork.
Sense on Cents did receive very interesting color the other day about the state of produce in California. A reader shared:
The cost of food is on the rise faster than you can eat.
Now the feds have cut off water to the central valley and fields are not being farmed. I do not about you but ya might want to watch the price of a head of lettuce in NYC go through the roof.
Additionally, I was surprised to see a rise in prices for cars of .2% and light trucks of 1.1%. Despite the fact that car and truck sales are at depressed levels, the auto companies are in such desperate straits that they need to squeeze revenue wherever possible. That said, the asking prices of these vehicles may have risen, but who pays asking?
Please share insights on these fronts or any others from your local economies so we all can more effectively navigate the economic landscape!!
LD
