2009-01-27 USER

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ICSC UBS Store Sales YoY (Jan 27)

Survey n/a
Actual -2.40%
Prior -1.80%
Revised n/a

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ICSC UBS Store Sales WoW (Jan 27)

Survey n/a
Actual -1.80%
Prior 1.10%
Revised n/a

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Redbook Store Sales Weekly YoY (Jan 27)

Survey n/a
Actual -2.30%
Prior -2.30%
Revised n/a

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Redbook Store Sales MoM (Jan 27)

Survey n/a
Actual -2.60%
Prior -2.50%
Revised n/a

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ICSC UBS Redbook Comparison TABLE (Jan 27)

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S&P Case Shiller Home Price Index (Nov)

Survey n/a
Actual 154.59
Prior 158.16
Revised 158.12

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S&P CS Composite 20 YoY (Nov)

Survey -18.40%
Actual -18.18%
Prior -18.04%
Revised -18.06%

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S&P Case Shiller US Home Price Index (Nov)

Survey n/a
Actual 150.04
Prior 155.45
Revised n/a

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S&P Case Shiller US Home Price Index YoY (Nov)

Survey n/a
Actual -16.55%
Prior -15.40%
Revised n/a

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Consumer Confidence (Jan)

Survey 39.0
Actual 37.7
Prior 38.0
Revised 38.6

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Consumer Confidence ALLX 1 (Jan)

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Consumer Confidence ALLX 2 (Jan)

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Richmond Fed Manufacturing Index (Jan)

Survey -50
Actual -49
Prior -55
Revised n/a

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Richmond Fed Manufacturing Index ALLX (Jan)


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Re: WSJ- States of Distress

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(email exchange)

I’d just give a total of $300 billion to all the states on a per capita basis in which case fiscal responsibility isn’t applicable.

>   
>   Morris wrote:
>   
>   Why didn’t I think of this???
>   
>   Subject states to the same rules as corporations.
>   
>   Why isn’t there moral hazard to this upcoming bailout??? Why should fiscally
>   responsible states pay for this??? Is this any worse than John Thain???
>   


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Re: Crude oil inventories update

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(email exchange)

Thanks, should be more than enough given the small drop in actual demand.

>   
>   On Mon, Jan 26, 2009 at 9:59 AM, David wrote:
>   
>   Tanker tracking suggests an OPEC11 production of 26.1 mbpd in January,
>   compared to the target of 24.85 mbpd, with Saudi Arabia, Venezuela and
>   Nigeria leading the cutbacks. However, this represents a cut of only
>   2.9 mbpd from the agreed cut of 4.2 mbpd (a compliance of 69%), which is
>   somewhat under the estimated 3.5 mbpd cut needed to balance the market in
>   the near term. But it should easily balance the tightening market further out,
>   especially if compliance improves.
>   

The contango in the futures market continues to come in, as does the spread between WTI and Brent.

The RBOB contango also coming in, indicating gasoline supplies are also tightening.

This indicates spot supplies are tightening- the OPEC cuts are ‘working’.

Most consumption indicators show crude consumption to be about flat or only down slightly year over year.

The great Mike Masters inventory liquidation that began in July may finally have run its course.

And the Saudis are back to being price setter.

I would strongly recommend any fiscal adjustment that increases aggregate demand be accompanied by policy that immediately and substantially reduces crude oil and gasoline consumption.


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Something went wrong in July

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Something went wrong in July. Most of the charts look like this:

2009-01-26 Capacity Utilization, ISM Manufacturing

It might have been the fall off of the q2 fiscal adjustment, the Olympics, the Lehman collapse, and/or, of course, the GMIL (Great Masters Inventory Liquidation).

2009-01-26 Capacity Utilization, ISM Manufacturing

And inventories also took a dive, from not all that high levels, adding to the slowdown.
Low inventories also mean the slow down need not last long when demand picks up with the coming fiscal adjustments.

2009-01-26 Capacity Utilization, ISM Manufacturing

What the car companies need is higher sales. Capital injections won’t go far with demand looking like this.

2009-01-26 Capacity Utilization, ISM Manufacturing

Notice personal income turning south with the Fed rate cuts, as interest income takes its toll. Yes, I know correlation doesn’t prove anything, but that’s my story and I’m sticking to it! Households are net savers and rate cuts eliminate income. Also, rates for savings have fallen a lot more than rates for borrowing this time around.

2009-01-26 Capacity Utilization, ISM Manufacturing

It’s been a long, slow dive, recently accelerating, since q2 06 when we pointed out the federal deficit was too small to sustain output and employment growth, due to the financial burdens ratios getting too high:

2009-01-26 Capacity Utilization, ISM Manufacturing

Looks like batteries have finally been recharged some over the last few years, even with personal income sagging.

2009-01-26 Capacity Utilization, ISM Manufacturing

All these look like household ‘balance sheets’ are improving.
And with rising federal budget deficits providing additional net financial assets this should continue.

Yes, the housing graphs, not shown look terrible, there are some signs it could all turn quickly:

2009-01-26 Capacity Utilization, ISM Manufacturing

2009-01-26 Capacity Utilization, ISM Manufacturing

Actual new home inventories are very low and probably picked over, as affordability continues to pick up.

2009-01-26 Capacity Utilization, ISM Manufacturing

Also, home ownership is low, and rental vacancies under control.

All indicating the coming fiscal adjustment could act more quickly than expected.

2009-01-26 Capacity Utilization, ISM Manufacturing

No let up here, however.

Unfortunately some of the latest Congressional incentives reward delinquency, anecdotally causing some otherwise good paying borrowers to not make payments to qualify for assistance.

2009-01-26 Capacity Utilization, ISM Manufacturing

It’s government to the rescue, as the automatic stabilizers do their thing to increase federal deficit spending and add income and savings of financial assets to the non govt. sectors.

2009-01-26 Capacity Utilization, ISM Manufacturing

Might be the output gap cutting down the rise in prices, and might be the GMIL (great Masters inventory liquidation). It’s too soon to tell- probably some of both.

2009-01-26 Capacity Utilization, ISM Manufacturing

Opec cuts seem to have stemmed the tide, and pave the way for the Saudis resuming their role of price setter. Demand has dropped very little. This is not the 80’s when demand dropped by over 15 million barrels per day after natural gas was deregulated in 1978 and it and coal replaced crude oil for most power generation.

2009-01-26 Capacity Utilization, ISM Manufacturing

Talk is cheap- supporting their exporters is a priority!

2009-01-26 Capacity Utilization, ISM Manufacturing

Cautions about the coming Obamaboom.

2009-01-26 Capacity Utilization, ISM Manufacturing

Hints of credit spreads stabilizing.

2009-01-26 Capacity Utilization, ISM Manufacturing

The eurozone is fading quickly, and it could all go bad here again if (when?) their financial structure melts down.


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Geithner quote

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Doesn’t get much more counterproductive than this:

Geithner’s testimony to Senate Finance panel

Jan 21 (Reuters) — GEITHNER ON U.S. DEFICIT, ENTITLEMENT PROGRAMS: “It is absolutely critical to the efforts to get the economy back on track that we give the American people and investors around the world confidence that we’re going to have the ability and the will, working with the Congress, to get our fiscal position back down over the next five years to a sustainable position, but also that we’re willing to start to take on and find a consensus on a bipartisan basis for putting Social Security and Medicare on a more sustainable financial position longer term.

“I think we have to do both of those things together.”


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Re: fixing the banks and the economy

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Comes down to the fundamentals of banking and public purpose.

Presumably it serves public purpose for banks to have private equity capital as a ‘first loss’ piece to ‘protect’ government from loss due to deposit insurance.

Either it does or it doesn’t suit public purpose to do that at any give point in time.

‘Injecting’ government capital to act as a first loss piece to protect government from loss due to deposit insurance is nonsensical as government is in a first loss position either way.

Nationalizing means government is in a first loss position all the time.

So functionally, if a bank is insolvent due to insufficient (private) capital, and the government wants it to continue as a going concern, all it has to do is continue to insure the liabilities as it currently does, and permit the institution to continue operations desired by government without sufficient private capital ratios.

Government can also set a ‘cost’ for doing this if it’s concerned about private shareholders and uninsured creditors ‘profiting’ for these measures.

Etc.

But at the macro level banking is not viable without government doing job one of sustaining aggregate demand via getting the fiscal balance right. Or at least sufficient to muddle through.

Lending makes no economic sense to a for profit institution with falling asset prices and falling incomes.

So a full payroll tax holiday and a $300 billion no strings attached transfer to the states restores aggregate demand and stabilizes asset prices.

Delinquencies fall and the ‘toxic waste’ turns AAA, as everyone wonders what all the fuss was all about.

And a national service job for anyone willing and able to work that includes health care elevates life to a new level of prosperity which should have been considered normal all along.

>   
>   On Fri, Jan 23, 2009 at 11:39 PM, Russell wrote:
>   
>   George Soros, in a comment in today’s Financial Times, “The right and wrong
>   way to bail out the banks,” takes issue with the idea of reviving TARP 1.0 in
>   new dress and suggests another approach for dealing with the banking crisis:
>   
>   According to reports in Washington, the Obama administration may be close to
>   devoting as much as $100bn of the second tranche of the troubled asset relief
>   programme funds to creating an “aggregator bank” that would remove toxic
>   securities from the balance sheets of banks. The plan would be to leverage
>   this amount up 10-fold, using the Federal Reserve’s balance sheet, so that
>   the banking system could be relieved of up to $1,000bn (€770bn, £726bn)
>   worth of bad assets…..
>   
>   [T]his approach harks back to the approach originally taken – but eventually
>   abandoned – by Hank Paulson, the former US Treasury secretary. The
>   proposal suffers from the same shortcomings: the toxic securities are, by
>   definition, hard to value. The introduction of a significant buyer will result, not
>   in price discovery, but in price distortion.
>   
>   Moreover, the securities are not homogeneous, which means that even an
>   auction process would leave the aggregator bank with inferior assets through
>   adverse selection…..
>   
>   These measures – if enacted – would provide artificial life support for the
>   banks at considerable expense to the taxpayer, but would not put the banks
>   in a position to resume lending at competitive rates….
>   
>   In my view, an equity injection scheme based on realistic valuations, followed
>   by a cut in minimum capital requirements for banks, would be much more
>   effective in restarting the economy. The downside is that it would require
>   significantly more than $1,000bn of new capital. It would involve a good
>   bank/bad bank solution, where appropriate. That would heavily dilute existing
>   shareholders and risk putting the majority of bank equity into government
>   hands.
>   


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2009-01-26 USER

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Existing Home Sales (Dec )

Survey 4.40M
Actual 4.74M
Prior 4.49M
Revised 4.45M

 
Existing home inventories now being worked off rapidly as foreclosure sales move through the pipeline.

Inventories in general are all very low in absolute terms.

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Existing Home Sales MoM (Dec)

Survey -2.0%
Actual 6.5%
Prior -8.6%
Revised 9.4%

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Existing Home Sales YoY (Dec)

Survey n/a
Actual -3.5%
Prior -11.4%
Revised n/a

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Existing Home Sales Inventory (Dec)

Survey n/a
Actual 3.676
Prior 4.163
Revised n/a

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Existing Home Sales ALLX 1 (Dec)

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Existing Home Sales ALLX 2 (Dec)

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Leading Indicators (Dec)

Survey -0.2%
Actual 0.3%
Prior -0.4%
Revised n/a

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Leading Indicators ALLX (Dec)


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Re: Goldman on the fiscal package

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>   
>   On Thu, Jan 22, 2009 at 5:46 PM, Michael wrote:
>   
>   Bullet points from the GS report, what do you think of their assessment?
>   

Pretty good up to a point.

Agree the deficit probably should be larger to restore full employment.

It goes bad where highlighted below:

>   
>   The US economy urgently needs a large dose of fiscal stimulus to counter a sharp
>   retrenchment in private-sector spending. Consumers are cutting back in a way not
>   seen since World War II, and businesses are following suit. Based on current equity
>   prices, current credit spreads, and the trend in home prices, we expect the
>   private-sector balance between income and spending to rise from 1% of GDP in
>   mid-2008 to about 10% by the end of 2009, an annualized increase of 6% of GDP.
>   
>   To fill this hole in demand, the federal government should become the spender of
>   last resort, as monetary easing cannot do the job alone. We reckon that the
>   appropriate level of stimulus is $600 billion (bn) at an annual rate, or 4% of GDP,
>   

Could be. Maybe more.

>   
>   with the remaining 2% filled by a narrowing in the current account deficit.
>   

Increased domestic demand and higher crude prices could increase the trade gap, which would be highly beneficial, reduce demand, and therefore allow us to run deficits that much higher.

>   
>   Moreover, with prospects for cyclical recovery in the private sector looking dim,
>   this stimulus should stay in place through 2010 and be withdrawn only gradually
>   thereafter. The bill recently introduced in Congress, priced at $825bn over two
>   years, is a major step in the right direction but is apt to prove insufficient if our
>   estimates are correct. On the five-year view customarily used to score such
>   programs, we could justify stimulus totaling $2 trillion.
>   

Agreed!

>   
>   While stimulus will boost the federal deficit, it is important to recognize that the
>   deficit will rise sharply even if nothing is done. Our projection of the private-sector
>   balance implies a deficit of about $1 trillion in 2009, a figure that looks roughly
>   consistent with the Congressional Budget Office (CBO) baseline—$1.2 trillion for
>   fiscal 2009—when adjusted for differences in economic outlook, accounting, and
>   timing. Moreover, since the deficit must ultimately be financed either by private
>   domestic saving or net foreign inflows, the net budget cost of stimulus can be
>   reduced if the package avoids measures that mainly boost saving.
>   

There’s nothing ‘wrong’ with measures that increase savings and therefore require higher deficits. He’s afraid of deficits per se.

>   
>   Likewise, much of the prospective surge in federal debt that terrifies many market
>   participants is already baked in the recessionary cake. While stimulus will aggravate
>   this increase, the United States starts from a fairly comfortable federal debt ratio
>   of just over 40% of GDP at the end of fiscal 2008, lower than the G7 average. And
>   those who worry about a lack of demand for all this debt should not overlook US
>    households and businesses as potential customers.
>   

Lack of demand is never an issue.

>   
>   After all, it is their efforts to repair balance sheets that has caused the need for
>   stimulus; with risk aversion running high, it stands to reason that they will shoot
>   a few bucks the government’s way to help it do their spending for them.
>   
>   However, the long-term budget imbalance remains serious.
>   

Not applicable.

>   
>   Thus, any program must feature measures that not only have quick and powerful
>   effects but also expire as soon as the need for stimulus has passed. To balance
>   these competing objectives, the package should focus on infrastructure and
>   investment but also include carefully targeted tax cuts, enhancements of benefit
>   programs, and aid to state and local governments as a bridge to these projects,
>   many of which take time to develop.
>   

OK.

>   
>   Assuming that the final package is in the range now under consideration, we
>   estimate that the federal deficit will reach $1.425 trillion in FY 2009, or 10% of
>   GDP (based on CBO’s accounting for TARP and GSEs). While the scale of the
>   package driving this change has risen sharply in recent months, so has the rate
>   at which the economy is losing momentum. Accordingly, we have not changed
>   our economic outlook, though of course this remains subject to review.
>   


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Re: Government version of a payroll tax holiday :(

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>   
>   On Fri, Jan 23, 2009 at 3:04 PM, Randall wrote:
>   
>   Take a look; incredible. Instead of a holiday they come up with a mess.
>   

Right, and whoever thought leaders who know nothing about how the monetary system actually works would get it so wrong:

Congress is racing to pass a giant bill to stimulate the economy. But a key piece of it may be a little slower in coming than many people expect.

The biggest single tax break in the Democrats’ proposed economic recovery package is the $145 billion ‘Make Work Pay Credit’.

The credit, which President Obama championed, would reach close to 95% of workers and be paid primarily through paychecks. It would be worth $500 per worker or $1,000 for working couples who file jointly. The full credit will be available to those making $75,000 or less, or $150,000 or less for couples. Even workers in those income groups with no tax liability would get it.

The bill is still being debated. But as things currently stand, workers may not see that money until June. And some of the lowest wage workers — those who economists say are most likely to spend the money rather than save it — may not see their credit until they file their 2009 federal tax return sometime next year. But for the credit to be paid out in workers’ paychecks, employers will need to change how much tax they withhold. And they would need new withholding tables from the Treasury Department to do that.

>   
>   On Fri, Jan 23, 2009 at 11:54 Stephanie wrote:
>   
>   See business about time necessary to prepare new tables, etc. Totally unnecessary
>   if we move to zero with payroll tax holiday.
>   
>   

Worker Tax Cut: Maybe Not so Immediate

by Jeanne Sahadi

Jan 23 (CNN Money) — Congress is racing to pass a giant bill to stimulate the economy. But a key piece of it may be a little slower in coming than many people expect.

The biggest single tax break in the Democrats’ proposed economic recovery package is the $145 billion “Make Work Pay Credit.”

The credit, which President Obama championed, would reach close to 95% of workers and be paid primarily through paychecks. It would be worth $500 per worker or $1,000 for working couples who file jointly. The full credit will be available to those making $75,000 or less, or $150,000 or less for couples. Even workers in those income groups with no tax liability would get it.


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