Van Santos

The actual title of the article I just read was “US loses just 345,000 in May, raises hopes”

JUST 345,000?

Employers throttled back on layoffs in May and cut the fewest jobs in any month since the financial crisis erupted last fall — raising the brightest hope yet that an economic recovery will take hold later this year.

But with companies still reluctant to hire, the nation’s jobless rate rose to a quarter-century high of 9.4 percent, and it likely will keep rising into 2010, possibly within striking distance of its post-World War II peak of 10.8 percent.

“Less bad, yes,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, said, summarizing the economy. “Good, no.”

The press is still in the “Less bad” mood, but this is still significant as the nation is now at 9.4% (reported).  More over, people are starting to revise their end estimates.  Previously economists were saying this wouldn’t go beyond 10%, now it is expected that unemployment may hit almost 11%.

Two large issues are on the horizon - taxes and energy cost.

1) The massive amounts of money spent for a stimulus that hasn’t worked will be coming back to haunt us soon.  As a result, the government will need to find a way to raise money in order to continue paying benefits.  There is only one way this will happen: raise taxes.  If they raise business taxes, that will impact earnings.  In turn, companies will look for cost savings in order to boost their profits.  Where do you think that will start?

Employees.

As such, more layoffs would come back into play.  While, possible, not as bad as 600K per month layoffs none the less.

2) Energy.

Oil/Energy is once again getting out of control for reasons NOT based on demand.  If energy continues to move toward $90, earnings will once again be impacted.  Again, here we go.  Companies will slow spending, construction will diminish, the consumer will cut back which means retail will hurt…  and there we go, layoffs will start once again as companies attempt to rightsize for the market conditions.

This is a bad cycle we are in and, I fear, it is going to be a prolonged cycle.

Let’s continue on the economic posting theme, shall we?

Nouriel Roubini, the economist who predicted the entire financial crisis several years ago, has come out and stated the economy may face even more difficulty next year.

I still expect that economic growth in the U.S. is going to be negative through Q4, and that we’ll see positive growth in Q1,” Roubini told Reuters in an interview on the sidelines of the Seoul Digital Forum.

“The U.S. recession is going to be U-shaped, lasting roughly 24 months,” he added. “Compared to the current consensus that says we are practically at the end of the recession … my view is: no, it’s going to last another six to nine months before it’s over.”
…

Roubini stood by a recent article in which he mentioned the possibility of a “perfect storm” in 2010.

“There is even a risk of a double dip, a W-shaped recession at the end of next year,” he said, a combination of rising oil prices, rising public debt and increases in real interest rates, rising concerns about inflation and the expiration of a number of tax cuts in the United States.

While I was originally skeptical of Roubini when I first read his work, I’ve since come to pay attention to his works. The price of oil – remember yesterday how Saudi Arabia thought the world could handle $80 oil… yea, not so much – the debt we’ve put on the books in trying to save the economy, and inflation may do use in when it comes to economic recovery.

Sure, anything can change. We are not even out of the woods with our current situation, so talking about what may come next is pure speculation, but I’ve had a lot of fear about energy, debt and inflation ever since the crisis started up. I’ve always thought it would come back to haunt us. I’m glad to see I’m not the only one.

Not trying to be a fear monger here, I’m really trying to keep the positive of life in mind, but I do have to point out that Continued Unemployment Claims have hit a record high.

In the week ending May 16, the advance figure for seasonally adjusted initial claims was 631,000, a decrease of 12,000 from the previous week’s revised figure of 643,000. The 4-week moving average was 628,500, a decrease of 3,500 from the previous week’s revised average of 632,000.

The advance seasonally adjusted insured unemployment rate was 5.0 percent for the week ending May 9, an increase of 0.1 percentage point from the prior week’s unrevised rate of 4.9 percent.

The advance number for seasonally adjusted insured unemployme;nt during the week ending May 9 was 6,662,000, an increase of 75,000 from the preceding week’s revised level of 6,587,000. The 4-week moving average was 6,480,500, an increase of 131,000 from the preceding week’s revised average of 6,349,500.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.071 million.

One must keep in mind that unemployment is a lagging indicator, but an initial claim of 631,000 is still significant. The record high of 6.66 million shows just how bad things have been in terms of employment in the U.S. during this recession.

Remember, as the automotive industry continues to “right size” one can reasonably expect the employment number to be negatively impacted.

Here is another indicator of the weak job market, brought to us by the friendly people at the U.S. Department of labor:

In the week ending May 9, the advance figure for seasonally adjusted initial claims was 637,000, an increase of 32,000 from the previous week’s revised figure of 605,000. The 4-week moving average was 630,500, an increase of 6,000 from the previous week’s revised average of 624,500.

The advance number for seasonally adjusted insured unemployment during the week ending May 2 was 6,560,000, an increase of 202,000 from the preceding week’s revised level of 6,358,000. The 4-week moving average was 6,337,250, an increase of 128,750 from the preceding week’s revised average of 6,208,500.

A few things to note regarding this data:

• The initial claims number, while high, is roughly 30K less than the peak number (for this recession) that was established a few weeks ago

• The continued claims of 6.56M is a new record

• If GM goes into bankruptcy, it is reasonable to expect that initial claims will remain high even if other areas of the job market improve slightly

• If initial claims remain high, there will be a cascade effect to other areas of the economy – namely retail.

Bottom line: The “green shoots” of hope seen by the Federal Reserve are long since gone. While the economy may be in a bottoming process, we are far from being in a good position.

If one listens to the press, all of a sudden the economic world that was in total free fall all of two months ago is suddenly not that bad.  So, which is it?  Is the world on the verge of total economic collapse or are we all living in a world where we just might make it out alive.

I don’t know, I’m not an economist, but I will point out a few things and let you decide.

Foreclosures continue to rise while property values continue to plummet.  Not fall, plummet.  Some areas of the nation are seeing property values falling by nearly half.

Bank or America, JP Morgan Chase, Goldman Sachs and Citibank have all reported better than expected results but there is significant discussion on how and when to release the bank stress test results.  Doesn’t that seem odd to you?

Both California and North Carolina have record unemployment

General Growth Properties, the second largest shopping mall operator in the world, declared bankruptcy due to unmanageable debt and a loss of contracts.

Venture Capital investments are at their lowest in 12 years, this means new ideas are now being fueled… new businesses are not starting….

The US has lost 4,197,371 jobs since February 2008 and the layoffs continue in waves

For some reason Ben Bernanke sees positive signs in the economic situation and is “fundamentally optimistic” about where we are doing.

So, what do you think?

Maybe Bernanke and company is looking at information unavailable to the rest of the public but all that I see is negative.  I want to see true signs of recovery, I want to see that the nation – and the world – is turning around but I simply don’t.  I simply cannot believe that things have turned for the positive.  If the banks were strong – truly strong – the stress test results would be released without debate as to how to do so.  If things were bottoming – let alone growing – the layoffs would not be continuing at such a large clip.

Bottom line, for me, I think the worst is yet to come.  GM and/or Chrysler will go into bankruptcy, major banks will go under or be nationalized, and unemployment will continue to rise - I still believe 10% is going to happen this year.

So, what do you think? Am I missing something?

While I had originally doubted Nouriel Roubini, I have come to believe he is one of the very few economists who continues to publicly state the true market conditions. He holds no punches, he appears to have no fear at what others think about his predictions and… he is not swayed by the political landscape.

Today, Mr. Roubini sends another warning:

“The stock market is a bit ahead of the real macroeconomic and financial news,” Roubini, a professor at NYU’s Stern School of Business and the chairman of consulting firm Roubini Global Economics, said in an interview with Bloomberg Television in London today. “We’ll have some major banks going belly up that will need to be taken over.” 

..

Roubini, who predicts loan and securities losses in the U.S. will reach $3.6 trillion, said the stress tests will reveal that some banks need to be taken over and have their good and bad assets separated before being sold to the private sector. He didn’t name which companies he thought would need to be rescued. 

What will the U.S. Bank Stress test show?  I have a feeling that Roubini is on target with his assessment that some major banks will go bell-up.  That is why when I hear an organization, such as Citibank, say they’ve suddenly become profitable, in the hardest of economic conditions the market has witnessed in years, after over a year of unprofitably just doesn’t seem right.  It’s nearly impossible, and I believe the stress test will show just how vulnerable the institution (and others) really are.

It has often been said the Stock market anticipates what conditions will be like 6 months from now.  If that is the case, the market is being overly optimistic right now.   Major banks need to be addressed, unemployment will continue to rise during the year and retail sales are nowhere near recovery. 

I’m not trying to be to be negative, people need to be realistic about what we are facing.

This may sound like a foolish question, but isn’t failure a part of capitalism – not the end of capitalism?

Since the downturn of the economy, public anger towards corporations has grown quite noticeably. While the public should be, and has the right to be, angered at companies that accepted “emergency” funding, yet continued to pay out bonuses, there are a number of companies who are the target of public ire simply because they… well… are large and grouped into industries that are currently under stress.

A number of news commentators, politicians, and bloggers worldwide have made comments like:

“This is a failure of extreme capitalism” - Prime Minister Kevin Rudd  

“These events are signposts in the historic failure of American and world capitalism” - Barry Gray

“Capitalism is a failure - what the bailout means for working people”  - Workers International League

Yes, the world is in the throws of a severe economic recession. Individuals worldwide have witnessed their net worths shrink dramatically. Jobs, even for the most qualified of individuals, are hard to come by. Companies that managed to survive the great depression are now facing extinction. 

Not to sound crass, but isn’t this all part of the cycle?

Think about the season cycle for a moment.  You have spring and summer, providing a rebirth and growth period, followed by fall and winter, which leads to death and the void of life.  The pulse of a capitalist society follows the same patter.  Contraction and Expansion.  The process helps remove the weakness, allowing for a stronger system to emerge on the other side. 

In no way am I saying it is easy to experience this economic pain, it is not.  While not unemployed, I have suffered financial losses greater than I had ever expected. Frankly, losses that will take 10 years to simply break even if the market were to turn today.  Am I happy about this?  No.  If I wish to live in a capitalist society, these are the risks I have to accept.   But, really, what other options exist?

Socialism – Look at the socialist leaning economies in the world and one will see the same economic hardship, if not more severe.

Communism – Distinctly different than Socialism, but also a political and economic failure.

But why do I want to live in a capitalist society? Flexibility.  Hope.  Possibility. 

While I understand the difficulty facing anyone wishing to make a life in a capitalist society, I also know options and the possibility of success is less in a socialist or communist society.  I’m not saying it’s perfect, it’s not, but it sure is better than the other options on the table as of right now.

Gordon Brown, the Prime Minister of the United Kingdom recently said “the economic crisis demonstrates the failure of laissez faire capitalism.”

Really?  

Maybe the failure isn’t capitalism, maybe the failure is regulation and political intervention.  Had political leaders truly paid attention to auditors several years ago, the collapse of Frannie and Freddie would have never happened.  Instead, people simply were looking for how they could profit (financially and politically).   

Should the public be pissed because 165 million in bonuses are being paid out by AIG?  Damn right.  Should there be a backlash about GM being “bailed out” while grossly mismanaging their business for decades on end?  Yes. Should we be mad about that the government is handing blank checks to banks while not providing insight as to where the money is going. Yes. Should a company chastised simply because they are big? No. Should we over-regulate because of the current crisis?  No.  Should we declare capitalism dead? No.

The system can be, and should be, improved but we should not throw the baby out with the bathwater.  The experiment known as the United States has been a resounding success, politically and economically, regardless of our downfalls thus far (and we’ve had many, many downfalls). Now is the time to evaluate what works, what doesn’t, and make the changes that are needed to continue growing.

Since the second half of last year the stock market has been in a free fall and just about every economic forecast paints a picture of doom.  Oh, yea, and there is enough collective data to show the United States is in the worst recession since World War II.

Suddenly, President Obama seems to think the economy “is not as bad as we think”

Confronting misgivings, even in his own party, President Barack Obama mounted a stout defense of his blueprint to overhaul the economy Thursday, declaring the national crisis is “not as bad as we think” and his plans will speed recovery.

Challenged to provide encouragement as the nation’s “confidence builder in chief,” Obama said Americans shouldn’t be whipsawed by bursts of either bad or good news and he was “highly optimistic” about the long term.

Just to recap how things are “not as bad as we think”…

• Unemployment is now at 8.1%, up from 4.8% last year at this time
• Lehman Brothers, Washington Mutual, Wachovia, AIG, Fannie Mae and Freddie Mac have all collapsed
• Real Estate prices have fallen roughly 25% to 30%
• Household net worth has fallen 18% in the last year (or $11.2 Trillion)
• The government has passed two bail-outs – one for $700B, one for $787B
• GM and Chrysler are on the brink, all currently getting government funds to keep them operating, all face the worst sales market in 40 years
• The credit market is close to frozen, people – let alone companies – cannot obtain credit
• Year over year Retail Sales are down 12%, the most in the last 20+ years
• Foreclosure rates for U.S. houses are at historic highs
• Consumer Confidence is at historic lows

But no, it’s not that bad…

The reality, assuming we are all operating in reality, all points to a true economic meltdown that the world has not experienced in over two generations.  There is no question about it, things ARE as bad as we think.  The question is will they continue to get worse.

I’m starting to have issues with the language that President Obama is using while discussing the financial crisis. Specifically, I do not care for the fact that the President continues to try to place the blame on his predecessor.

Let’s be very, very clear here – the current recession and financial crisis started under President Bush and his administration. There was very little the Bush administration did to make the situation any better or worse.  The only option they provided was a $700 Billion TARP package that was mismanaged, and continues to be. There is no doubt or question about that, however, every time President Obama makes a decision about economic policy he is taking ownership of the problem. Every decision his administration is making has a direct impact on the current economic environment.

Every time the Obama administration passes legislation – such as the $787 Billion Dollar stimulus that doesn’t stimulate anything, the Housing Bill that only addresses a very limited number of mortgages, or creating the biggest Deficit in the history of the country – he taking greater ownership of a problem that appears to be spiraling out of control.  

That is speech like the following can only go on for so long:

As soon as I took office, I asked this Congress to send me a recovery plan by President’s Day that would put people back to work and put money in their pockets. Not because I believe in bigger government - I don’t. Not because I’m not mindful of the massive debt we’ve inherited - I am. I called for action because the failure to do so would have cost more jobs and caused more hardships.

Obama to Congress

Or

“I did think it might be useful to point out that it wasn’t under me that we started buying a bunch of shares of banks. It wasn’t on my watch. And it wasn’t on my watch that we passed a massive new entitlement -– the prescription drug plan — without a source of funding. And so I think it’s important just to note when you start hearing folks throw these words around that we’ve actually been operating in a way that has been entirely consistent with free-market principles and that some of the same folks who are throwing the word ’socialist’ around can’t say the same.” 

Obama to NYT Reporters

The American public will only accept the “it’s not my fault” cry for so long.  Eventually the populous will start pointing to the impact of the administration and say “while you didn’t start it, you’ve made it worse.” So when does this become Presidnet Obama’s mess?  Ever day that passes.

It’s time for President Obama to man up and take ownership of the problem regardless of who created is to blame or at fault.  The President needs to stop attempting justify his actions by saying “well, others before me did so therefore I am too”.  

The President needs to do what he was elected to do – lead.

Anyone who even casually follows the financial market is well aware that today a horrific day in the Stock market.  While the Economy (and stock market) experienced a large amount of pain over the last 6 months, today appeared to be even more painful for a number of reasons.

• General Motors finally admits “there is substantial doubt” about their survival

Despite massive restructuring efforts, despite the loans provided by the government, and despite everything the company has said previously, General Motors finally admitted what the rest of the world already knew – the end of the road is close for General Motors.

Deloitte & Touche, the GM’s auditors, made the following statement: 

The corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern.

Having experience in the world of audit, this is the professional way of saying “Bankruptcy is going to happen”.  

The major question that is on the minds of most is how this bankruptcy take place?  Will the government act as the funding institution, propping up General Motors during the restructuring process, or will GM face a massive liquidation event pushing the into the pages of oblivion?

President Obama previously stated that he will not allow the American auto industry to fail, and Congress has already provided funding to GM and Chrysler, so what wouldn’t the Government act as the financier for a GM bankruptcy?  

Maybe government officials would fear the backlash from the general public.  

The world will not end when General Motors goes bankrupt, but it will be painful.  Other companies will suffer the same fate as a result and the stock market will whipsaw with uncertainty but we will all survive.  Politicians, however, may not survive the next round of elections if huge amounts of public funding are dedicated to propping up a company that has no hope of survival.

• The list of 19 banks undergoing a “stress test” was released:

 

Name	Total Assets (Billions)
1. JPMorgan Chase	2,175
2. Citigroup	1,947
3. Bank of America (1)	1,822
4. Wells Fargo	1,310
5. Goldman Sachs	885
6. Morgan Stanley	659
7. MetLife	502
8. PNC Financial Services	291
9. U.S. Bancorp	267
10. Bank of New York Mellon	238
11. GMAC	189
12. SunTrust	189
13. State Street	177
14. Capital One Financial Corp.	166
15. BB&T	152
16. Regions Financial Corp.	146
17. American Express	126
18. Fifth Third Bancorp	120
19. KeyCorp	105

 
What does this say to you?  The majority risk really falls within 6 institutions.  Unfortunately, institutions 2 and 3 are suffering the most on this list.

• 12% of U.S. Mortgage holders are either behind in their mortgage payments or in forclosure

This one is HUGE.  A record number of mortgage holders, 5.4 million, are delinquent in with their monthly payments.  

The Mortgage Bankers Association said Thursday the percentage of loans at least a month overdue or in foreclosure was up from 10% in the July-September quarter and up from about 8% a year earlier.

The scary part of this information, aside from the drastic rise, is the location(s) of the delinquent mortgages – Louisiana, New York, Georgia, Texas and Mississippi.  The mortgage crisis is spreading beyond the borders of California, Florida, Arizona and Nevada.  What was once a localized but highly publicized event is truly becoming a nationwide crisis.  

• Citibank hits an all time low… of 97 cents

I never thought the day would come where Citibank, once the largest bank in the world, dropped below the one dollar mark today.  While this not “economic” news it is important none the less as the price is a psychological indicator – the stock market believes that Citibank will not survive the financial meltdown.

And what does tomorrow bring?

Pundits and market watchers expect Friday to be an extremely volatile day – at 7:30 AM the new Unemployment rate will be announced. Economists predict unemployment to come in at 7.9%.  Lower and the market may celebrate.  Higher and the day may see a sell off at the open.

No one knows what awaits for us tomorrow, but it sure will be fun to watch…

UPDATE: 03/05/09 - Treasury Secretary Geithner’s choice for deputy withdraws

The person Treasury Secretary Timothy Geithner wanted as his chief deputy withdrew from consideration Thursday, dealing a setback to the understaffed agency as it struggles to address the worst financial crisis in decades.

Annette Nazareth, a former senior staffer and commissioner with the Securities and Exchange Commission, made “a personal decision” to withdraw from the process, according to a person familiar with her decision.

The decision followed more than a month of intense scrutiny of her taxes and multiple interviews. No tax problems or other issues arose during Nazareth’s vetting, said the person, who requested anonymity because Geithner’s choice of Nazareth was never announced officially.

So, did Congress find something in her past or did she simply get fed up of the inquisition?