Thursday, October 29, 2009

GDP Posts 3.5% Gain In Third Quarter

The US GDP(gross domestic product) rose 3.5% for Q3 according to the Bureau of Economic Analysis.

" The increase in real GDP in the third quarter primarily reflected positive contributions from
personal consumption expenditures (PCE), exports, private inventory investment, federal government
spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP,

The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in private
inventory investment, in exports, and in residential fixed investment and a smaller decrease in
nonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state and
local government spending, and a deceleration in federal government spending.

Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after
adding 0.19 percentage point to the second-quarter change. Final sales of computers subtracted 0.11
percentage point from the third-quarter change in real GDP after subtracting 0.04 percentage point from
the second-quarter change."

However, at least half the gain was due to temporary government stimulus schemes. The market is reacting well to the news and the pundits are claiming this marks the end of the recession.

It's too quick to claim this is the end. As Barry Ritholtz points out his Big Picture

"The 1st question to ask about GDP is the degree of inorganic/artificial gains. As the above paras suggest, much of the improvement is where the government is spending, incentivizing, or bailing out various sectors: Autos, Residential RE, and Fed spending. As expected, Inventory reduction helped, and unexpectedly, increasing imports hurt.

A large chunk of the gains — 1.66 percentage points — came from Car sales in the form of cash for clunkers; this will not be in the Q4 data.

Home building soared 23.5% — reflecting a combination of zero percent interest ratyes (ZIRP) and 1st time homebuyers tax credit. That was good for another 0.5 percentage points of GDP.

Well over half of the gains are therefore government related.

Also of note: Nominal GDP was below forecasts, thanks to a surprise 0.8% gain in the deflator (That also added to the REAL GDP figure). Hence, a chunk of the gains are pure inflation."

Claims that the recession is over are premature, at best. The Q4 Christmas shopping season will be a huge test. Credit card companies have jacked up interest rates and decreased credit limits on millions of people. It's extremely likely that it will have a negative effect on sales.

Monday, October 26, 2009

Chris Dodd: Bankster's Best Friend

Senator Chris Dodd says he will introduce legislation to freeze interest rates on credit cards. That's nice. This, after the major credit card companies have already screwed everybody. Does anyone remember the term "loan sharking"?

I hope Peter Schiff slams this duplicitous moron to the high hills.

Here's Dodd's top 20 campaign contributors over the last five years:

1 Citigroup Inc $265,694
2 SAC Capital Partners $262,800
3 United Technologies $255,800
4 Royal Bank of Scotland $223,700
5 Bear Stearns $190,500 $190,500 $0
6 American International Group $183,700
7 ActBlue $144,800
8 Merrill Lynch $129,950
9 Goldman Sachs $127,950
10 Credit Suisse Group $114,800
11 Morgan Stanley $110,600
12 Travelers Companies $104,700
13 JPMorgan Chase & Co $103,550
14 The Hartford $94,550
15 Hartford Financial Services $90,300
16 St Paul Travelers Companies $88,750
17 General Electric $81,700
18 Bank of America $80,350
19 Ernst & Young $80,250
20 FMR Corp $78,950

Wednesday, October 21, 2009

What Recovery?

Larry Summers says the economic recovery is on track.

From Reuters:

"The U.S. economy is firmly poised for a recovery from its deep recession but growth may be moderate and the job market will not revive immediately, senior White House aide Lawrence Summers predicted on Wednesday."

"It will be some time before unemployment starts to decline. Once it declines it will take a long time to return to normal levels, given how elevated it is," he said."

RIGHT...How does an economy that is 70% consumer spending revive if 10%(really20%)of it's citizens don't have an income? "For a long time" according to Summers.

""The question of what will propel growth throughout the expansion is still a crucial one," Summers added. "But that's always the case at the beginning of expansions."


"On the economy, Summers said the $787 billion stimulus package and inventory rebuilding by businesses were among the "dominant drivers" lifting the economy."

WHAT STIMULUS? STATES GETTING MONEY TO BALANCE(NOT) THEIR BUDGETS? Does anybody see stores restocking their shelves? Is shipping and rail up? NO.

"Summers said the oil price, which hit a one-year high above $81 a barrel on Wednesday, did not risk throwing the U.S. recovery off the rails.

"I think the increase in oil prices is probably ... more a reflection of recovery and the expectation of continued recovery than a threat to recovery," he said."


Well, what would anybody expect. They can't come right out and tell us we're in uncharted waters and they're just winging it.

TARP Recipients Ordered To Make Big Salary Cuts

It looks like the natives are getting restless about reported big bonuses to the Banksters prompting the government to take some action. Not enough, soon enough...

From Detroit News:

"The Treasury Department will announce as early as today that it is slashing the pay of the top executives at seven companies, including General Motors Co. and Chrysler Group LLC, that received government bailouts.

In June, the Treasury Department imposed a number of restrictions on automakers and financial institutions that took government loans under the $700 billion Troubled Asset Relief Program. But Citigroup, Bank of America and the American International Group expected to see their pay and benefits cut much greater than the automakers', government officials said.

The Treasury Department's special master, Kenneth Feinberg, has been reviewing the compensation of the highest paid executives at the TARP recipient companies.

The New York Times reported that the seven companies that received the most assistance "will have to cut the cash payouts to their 25 best-paid executives by an average of about 90 percent from last year. For many of the executives, the cash they would have received will be replaced by stock that they will be restricted from selling immediately."

And for all executives, the total compensation, which includes bonuses, will drop on average by about 50 percent, The Times said. A government official said the Treasury Department didn't dispute the report.

Total compensation for the top executives at the seven firms will decline, on average, by about 50 percent, the Associated Press also reported, attributing the information to a person familiar with the administration's decision."

Friday, October 16, 2009

Greenspan: Break Up Big Banks

From Bloomberg:

" U.S. regulators should consider breaking up large financial institutions considered “too big to fail,” former Federal Reserve Chairman Alan Greenspan said.

Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.

“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”

At one point, no bank was considered too big to fail, Greenspan said. That changed after the Treasury Department under then-Secretary Hank Paulson effectively nationalized Fannie Mae and Freddie Mac, and the Treasury and Fed bailed out Bear Stearns Cos. and American International Group Inc. "

Well, it's about time a big government official starts to call it as they see it. Too bad nobody currently in office is entertaining the same thoughts.

Friday, October 2, 2009

Unemployment Rate Hits 9.8%

Figures released this morning show the highest unemployment rate since 1983. Some are putting a spin on it saying the increase was only .01% from august.

From BLS:

"Household Survey Data: Since the start of the recession in December 2007, the number of unemployed persons has increased by 7.6 million to 15.1 million, and the unemployment rate has doubled to 9.8 percent. (See table A-1.)

Unemployment rates for the major worker groups–adult men (10.3 percent), adult women (7.8 percent), teenagers (25.9 percent), whites (9.0 percent), blacks (15.4 percent), and Hispanics (12.7 percent)–showed little change in September. The unemployment rate for Asians was 7.4 percent, not seasonally adjusted. The rates for all major worker groups are much higher than at the start of the recession."

Here's another interesting tidbit:

"The preliminary estimate of the benchmark
revision indicates a downward adjustment to March 2009 total nonfarm
employment of 824,000 (0.6 percent)."

That means, of course, that another 824,000 people are unemployed that previously reported.

What does all this mean? As always, it's hard to predict the future and when this will all top out but considering the lack of economic activity and credit conditions it will take a long time to get back to the 5-6% range which is considered acceptable and normal.

Thursday, October 1, 2009

Auto Sales Tank In September

Auto sales tanked in september which means the "cash for clunkers" program provided just a temporary sales increase. Not unexpected.

GM sales fell 45%, Chrysler 44% and Ford 5.1%. Among imports, Toyota fell 13%, Honda 23%, and Nissan 11%. Oddly enough, Hyundai posted a gain of 27%. Total of all vehicles sold was 745,997.

The interesting thing is the huge drops in GM and Chrysler compared to Ford. This trend has been ongoing since the bailouts. Perhaps people are more willing to buy Fords because of some resentment against the other two automakers and the fact that Ford is still solvent(for now).

The perception of Japanese auto quality doesn't seem to have made a difference either. Hyundai is doing well. That may be the result of their warranty and the recent program to insure payments against job loss. On the other hand, GM's 60 day no questions asked return policy seems to have had no effect so far.

Of course, people are reluctant to take on new car payments in the current economic climate. If the old car is still running, they're more inclined to keep it or get it fixed if there are problems. With so many people unemployed and credit tight, the days of trading in for a new auto right after the old one is paid appears to be a thing of the past. At least in the numbers.