Restaurant Index Shows Contraction, Less Capital Spending


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Unfortunately the data for this index only goes back to 2002.

The restaurant business is still contracting …

Note: Any reading below 100 shows contraction for this index. The index is a year-over-year index, so the headline index might be slow to recognize a pickup in business, but the underlying details suggests ongoing weakness.

From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Uncertain as Restaurant Performance Index Declined in September for Second Consecutive Month

[T]he National Restaurant Association’s … Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 97.5 in September, down 0.4 percent from August and its 23rd consecutive month below 100.

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 96.0 in September – unchanged from August and tied for the second-lowest level on record. In addition, September represented the 25th consecutive month below 100, which signifies contraction in the current situation indicators.

The outlook for capital spending fell considerably from recent months. Thirty-seven percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, down sharply from 45 percent who reported similarly last month.


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gasoline demand vs 2 yrs ago


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I use comps from two years ago as last year was unusually choppy.

No sign of gasoline demand picking up that I can detect.

Starting to look like the Saudis decided to give themselves maybe a $10 per barrel price increase,
but too soon to tell.

GDP up some from last quarter but still below last year’s levels.

Inventories contributed .9% after being a drag previously, and motor vehicles contributed 1% to the 3.5% total GDP increase in this initial report.


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Moody’s Lowers Outlook on Portugal,Greece On Downgrade Review


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The Euro zone remains at risk of a liquidity crisis for the national govts.

This doesn’t help.

On Thu, Oct 29, 2009 at 5:37 AM, wrote:

5:02 *MOODY’S CHANGES THE OUTLOOK ON PORTUGAL’S Aa2 RATING TO NEG (From
Stable)
5:01 *MOODY’S PLACES GREECE’S RATINGS ON REVIEW FOR POSSIBLE DOWNGRAD

MOODY’S SAYS REVISION IN GREECE’S PROJECTED 2009 DEFICIT ADDS TO
CONCERNS ABOUT RELIABILITY OF COUNTRY’S OFFICIAL STATISTIC

to be clear Moody’s has Greece on A1 while S&P already has them on A-
and for Portugal Moody’s still has it on Aa2 and S&P is very penalizing
on A+

Peripherals cheaper after the news (Portugal +2bps, Greece +3bps, Italy
+ 1.5bps)


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Canada ready to buy $US on weakness


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From: Mario Seccareccia
Date: Sat, Oct 24, 2009 at 10:58 AM
Subject: RE: *Canada ready to buy $US on weakness
To: Warren Mosler

Warren,


I was at a conference in Quebec City on the issue of financialisation and I just got back literally during the night because of a nasty storm that caused flight delays last night.

However, the Governor of the Bank of Canada is under a lot of pressure from the export sector to do something about the high Canadian dollar because of the Dutch disease effects on the Canadian manufacturing sector. In fact, I have been invited to participate in a conference organized by the Quebec Federation of Labour and various employers’ associations in Montreal right at the beginning of December on exactly this question of the Canadian dollar.

As you know I stand with the Bank of Canada in defending a floating exchange rate but the Bank is under a lot of pressures from both those on the Right and on the Left of the political spectrum to institute some Chinese-style low (Can) dollar pegged exchange rate! This has been an on-going battle over the last few years every time the Canadian dollar is approaching parity with the US dollar. My position has always been to advocate fiscal (and monetary) policy to keep the economy on its full-employment path and I have proposed interregional transfers to deal with the problem of the Dutch disease. But it is very difficult for them to think in those terms because of their fixation with deficit spending and also because of the high constitutional fragmentation of the country that makes a policy of interregional transfers via the taxation of provincial natural resource revenues a political hot potato in Canada. Indeed, there have been even supreme court challenges from Newfoundland and others over the system of equalization payments because of the inclusion of provincial oil revenues in the formula for calculating the current regional transfers.

In any case, as you can see, given the current downward evolution of the US dollar, this might trigger competitive devaluations much as in the style of the 1930s.

Best,

Mario


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The harder they come, the harder they fall

Diversification became a substitute for credit analysis.

But also, if the deficit gets too small, the economy will implode sufficiently to get the deficit back up through falling tax revenues and rising transfer payments.

So the ‘tougher’ the private sector is, the harder the automatic stabilizers will work to bring it down, no matter how ‘tough’ you make it.

Conservatives Say Low Rates Are U.K.’s Best Route Out of Slump


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Earlier this year I thought the UK was on track with their understanding of their monetary system.

Recent headlines don’t look so promising:

Conservatives Say Low Rates Are U.K.’s Best Route Out of Slump

By Robert Hutton and Jennifer Joan Lee

Oct. 28 (Bloomberg) — Philip Hammond, a lawmaker who speaks on Treasury policy for the Conservatives, said the opposition party wants the Bank of England to keep interest rates low and will cut the deficit to allow this to happen.

“It is essential that in the recovery we are able to continue to keep monetary policy relatively loose,” Hammond said in an interview at Bloomberg’s office in London. “We will only be able to do that if we have got the deficit under control.”

The focus on monetary policy contrasts with Prime Minister Gordon Brown’s argument that maintaining government spending is the best bring Britain out of the worst recession since World War II.

With an election due within seven months, the question of how and when to cut spending is at the heart of the debate between the ruling Labour Party and the opposition. Brown argues that maintaining spending and cutting taxes are the best ways to return to growth. The Conservatives say those steps risk lifting inflation and interest rates, choking off recovery.

“What has got Britain through the recession so far has been the activist monetary policy at the Bank of England, keeping interest rates low, supporting the economy through quantitative easing,” Hammond said. “We will only be able to do that if we have sent a clear signal to the markets that we intend to execute a plan to get the deficit under control. We need to make a start in 2010.”

‘Active Monetary Policy’

Conservative leader David Cameron yesterday said he was “a great believer in an active monetary policy,” a step away from previous comments that the bank’s quantitative easing program would have to end soon.

Cameron told journalists that a speech he’d made at the start of the month had been misunderstood. “The point I was making was about how easy or difficult to fund our debt, because the market for gilts hasn’t really been tested yet, because of QE,” he said. He repeated his point that the intervention will have to end some time. “You can’t go on indefinitely.”

Policy makers at the central bank will decide next week whether to extend their asset purchase program, which is pumping

175 bln pounds ($286 bln) in newly created money into the economy.

The program has increased demand for U.K. government bonds, known as gilts, as the Treasury sells a record 220 bln pounds of debt this year.

The Conservatives have repeatedly warned this year that Brown’s spending plans are putting the U.K.’s AAA debt rating at risk. Hammond’s boss, George Osborne, told an audience of financiers on Monday that it was only the likelihood of a Conservative victory at the next election that was keeping Britain’s debt costs down. Conservatives have led Labour in polls for two years.


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Carney Says Intervention Needs Policy to Back It Up to Work


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CIBC Says Canada Should Consider ‘Bounded Float’ of Currency

This would help support exports. (But my first choice would instead be funding an $8/hr job for anyone willing and able to work and a tax cut to sustain domestic demand and optimize real terms of trade.)

Carney Says Intervention Needs Policy to Back It Up to Work

Oct. 27 (Bloomberg) — Bank of Canada Governor Mark Carney said today that central banks that try to affect the level of their currencies through market actions need to back the transactions with monetary policy to be effective.

Speaking to lawmakers, Carney said the bank could use tools, including quantitative easing, to implement policy with

the bank’s key interest rate as low as it can go.

Selling your own currency is the back up to your other, export oriented policy.

There is no limit to the amount of your own currency you can sell into a bid at that level.

The (operational) limit is how much the rest of world wants to buy at your selling price.

Quantitative easing has nothing to do with this.


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Roubini Says Carry Trades Fueling ‘Huge’ Asset Bubble


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Again, maybe right but for the wrong reason.

My take is the gold and commodity bubble is due to people (Roubini included) believing Fed policy is inherently inflationary – printing money and all that – when it’s not.

When those funds are done being committed, it can all end very badly in a deflationary tumble.

Roubini Says Carry Trades Fueling ‘Huge’ Asset Bubble

By Michael Patterson

Oct. 27 (Bloomberg) — Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini.

“We have the mother of all carry trades,” Roubini, who predicted the banking crisis that spurred more than $1.6 trillion of asset writedowns and credit losses at financial companies worldwide since 2007, said via satellite to a conference in Cape Town, South Africa. “Everybody’s playing the same game and this game is becoming dangerous.”


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Carry trade


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The article completely misses the point.

There is no ‘cash pouring into’ anything.

Nor is there a constraint on lending/deposits in any non convertible currency.

It is not a matter of taking funds from one currency and giving them to another.

There is no such thing.

Yes, the interest rate differential may be driving one currency high in the near term (not the long term) due to these portfolio shifts.

But the nation with the currency seeing the appreciation has the advantage, not the other way around.

Imports are the real benefits, exports the real costs, which the author of this piece has backwards.

The nation with the stronger currency is experiencing improving real terms of trade- more imports in exchange for fewer exports.

The most common way to realize this benefit is for the government to use the currency strength to accumulate foreign currency reserves by ‘pegging’ its currency to sustain it’s exports. This results in the same real terms of trade plus foreign exchange accumulation which can be of some undetermined future real benefit.

Better still, however, is cut taxes (or increase govt. spending, depending on your desired outcome) and sustain domestic demand, employment, and output, so now the domestic population has sufficient spending power to buy all that can be produced domestically at full employment, plus anything the rest of the world wants to net export to you.

Unfortunately those pesky deficit myths always seem to get in the way of anyone implementing that policy, as evidenced by this
article below and all of the others along the same lines. Comments in below:

>   
>   Steve Keen pointed me to it. Talks about the carry trade in US$ over to AUD$.
>   There are not Federal unsecured swap lines, would be interested in your take.
>   

Foreign speculation on our currency is a bubble set to burst

By Kenneth Davidson

Oct. 26 (National Times) — The pooh-bahs running US and British hedge funds and the banks supporting them are more than capable of reading the minutes of the Reserve Bank of Australia board meetings and coming to the conclusion that RBA Governor Glenn Stevens is committed to pushing up the cash rate from the present 3.25 per cent to 4 to 5 per cent if necessary.

And they are already betting tens of billions of dollars on what has so far been a sure bet.

But is always high risk, and not permitted for US banks by our regulators, though no doubt some gets by.

These foreign financial institutions are up to their old tricks. After getting trillions of dollars out of their respective governments to avoid GFC-induced bankruptcy – which was largely engineered by their criminal greed – because they are ”too big to fail”, they are already using their influence to maintain ”business as usual”.
Why funnel the money gouged out of American and British taxpayers into lending to their national economies to maintain employment when there are richer pickings elsewhere?

As above, these transactions directly risk shareholder equity. The govt. is not at risk until after private capital has been completely eliminated.

Two of those destinations are Brazil and Australia. Their resource-rich economies are still doing well compared with most other countries because they are riding in the slipstream of the strong demand for commodities from China and India.

Cash is pouring into these economies, not for development, but to speculate on the local currency and the sharemarket. The rising value of the Brazilian real and the Australian dollar against the US dollar has had a disastrous impact on both countries’ non-commodity export and import competing industries.

Yes, except to be able to export less and import more is a positive shift in real terms of trade, and a benefit to the real standard of living.

Brazil’s popular and largely economically successful left-wing Government led by President Lula da Silva is meeting the problem head on. It has decided to impose a 2 per cent tax on all capital inflows to stop the real appreciating further.

Instead, it could cut taxes to sustain full employment if that’s the risk they are worried about.

Arguably, the monetary strategy adopted by Stevens has compounded Australia’s lack of international competitiveness for our manufacturing and service industries, especially tourism. Since the end of 2008 our dollar has appreciated 27 per cent (as of last week). This means that financial institutions that invested money at the beginning of January are enjoying an annual rate of return on their investments of 35 per cent.

Tourism is an export industry. Instead of working caring for tourists a nation is better served taking care of its people’s needs.
And those profits are from foreign capital paying ever higher prices for the currency.

US and British commercial banks can borrow from their central banks at a rate less than 1 per cent. The equivalent RBA rate is 3.25 per cent and many pundits are forecasting the rate could go to 3.75 per cent before the end of 2009. This will increase the differential between Australian and British and US interest rates and make the scope for speculative profits even higher.

They are risking their shareholder’s capital if they do that, not their govt’s money, at least not until all the private equity is lost.
And the regulators are supposed to be on top of that.

Since the beginning of the year, $64 billion has poured into Australia in the form of direct and portfolio (share) investment and foreign lenders have switched $80 billion of foreign debt payable in foreign currencies to Australian currency. Most of the portfolio investment ($41 billion) has gone into bank shares. Banks now represent 40 per cent of the value of shares traded on the stock exchange, and while shares in the big four bank shares have increased by about 80 per cent (as measured by CBA shares), the Australian Stock Exchange Index has risen by only 30 per cent.

When anyone buys shares someone sells them. There are no net funds ‘going into’ anything.

Also, portfolio mangers do diversify globally, and I’d guess a lot of managers went to higher levels of cash last year, and much of this is the reversal. And it’s also likely, for example, that Australian managers have increased their holdings of foreign securities as well.

Foreigners have shifted out of Australian fixed interest debt and into equities because as interest rates go up, the capital value of fixed debt declines. By driving up interest rates to curb inflationary expectations and the prospect of a housing price bubble the RBA is in far greater danger of creating a stock exchange asset price bubble as well as an Australian dollar bubble. Once foreigners believe interest rates have peaked, the bubbles are likely to be pricked as financial speculators attempt to realise their gains. This could lead to a stampede out of Australian denominated securities.

Markets do fluctuate for all kinds of reasons, both short term and long term. The Australian dollar has probably reacted more to resource prices than anything else. But again, the issue is real terms of trade, and domestic output and employment.

With unemployment expected to continue to rise, and the level of unemployment disguised by growing numbers of workers being forced to work part-time, there is little chance of the underlying inflation rate, already below 2 per cent, increasing as a result of a wages break-out. The last wages breakout (leaving aside the explosive growth in executive salaries in the past three decades) occurred in 1979.

This gives the govt. cause to increase domestic demand with fiscal adjustments, including Professor Bill Mitchell’s ‘Job Guarantee’ proposal which is much like my federally funded $8/hr job for anyone willing and able to work proposal.

The world has moved on but the obsessive debate about wage inflation and union powers hasn’t. Since the beginning of the ’80s, the problem has been periodic bouts of asset price inflation. It is the biggest danger now.

Instead of controlling the unions, there should be control of financial institutions. The Australian dollar bubble and the incipient housing bubble should be micro-managed. Capital inflow could be dampened by a compulsory deposit of 1 to 2 per cent to be redeemed after a year to stop speculative inflow. Home ownership has become a tax shelter. The steam could be taken out of the rise in house prices if negative gearing was limited to new housing. This would obviate the need for higher interest rates that affect everyone.

The Job Guarantee offers a far superior price anchor vs our current use of unemployment as a price anchor. Also, I strongly suspect that the mainstream has it wrong, and that it is lower rates that are deflationary.


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