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Tuesday, November 13, 2012

Pretty Much Back

I've caught up with the news somewhat. I spent a sobering Veteran's Day weekend feebly trying to fix the driveway, wondering what the vets I knew would think about what this country has become. 

Regarding economics - Europe continues to slide down the ladder of failure. The latest tocsin of despair is the drive to stop foreclosures in Spain. While that might sound fine and dandy, it seems likely to put some surviving banks under. That cannot be helpful.

In Europe, the bright spot is Ireland, which is expanding. See the October Euro Markit composite. Unfortunately, Ireland's contribution is quite outweighed by Germany's slump. Germany now appears in recession. Yes, I know that's the German version, but I don't see the English version. Just look at the graphs and numbers. This is reinforced by the Construction PMI (English version), which shows a very significant contraction. Italy is contracting at a softer pace. 

Asia: Singapore - GDP contracted in the latest quarter. The verbiage is positive, the data is not. However it is contracting at a soft pace. China - well, we have loud cries of stabilization, but I am dubious. I think the net forward impetus is still negative. They are pushing it a bit, and I can only hope that involves hiring a bunch of construction inspectors, so those new subway tunnels don't start falling in on people's heads in a year or two. Japan is in a frank slump. The impending rise in sales taxes is hardly going to help. The disputes with China will hurt both countries. India is very weak indeed, but central bank stimulus is on hold due to consumer inflation near 10%.

US: NACM (business-to-business credit) showed the first signs of real problems. There was a big slump in payments, which, if continued, would indicate a significant problem that is doomed to affect the flow of credit. Chicago PMI - in slight contraction for the second month. Order backlogs are firmly negative and the effects are showing in employment, which is near contraction at almost a three-year low. Freight strongly supports the idea that the US economy continues to slow. Small business (NFIB) report for October shows continued weakness in earnings and sales. Earnings trends are declining but almost exactly where they were last year. However sales are worsening and are below where they were last year. Since April actual sales trends have been dropping very slowly, but this continued erosion suggests a poor business climate. October is one of the months with a big sample, and this one was particularly large. 

One of the most interesting reports I have looked at over the last few days was consumer credit. There has been a remarkable rise in Fed gov (aka student loan debt) reported July-Sept on an NSA basis -  more than 37 billion, or almost 8%. Of course this corresponds with the beginning of the fall semester, but it does answer one of the questions that was bothering me - where did the extra money come from for retail sales? Not all of this money went for tuition - some is being used for living expenses and showing up in retail numbers. Compare that number to the NSA rise in revolving July-Sept of just under 5 billion dollars. The student loan debt shows up in the non-revolving section, which in total over that period only rose 50.5 billion dollars. These are acutely imbalanced credit flows and a lot of this money won't be paid back. At this rate, student loan bad debts are going to be more of a burden on the taxpayer than Fannie/FHA/Freddie, which is saying a lot. 

I'm extremely comfortable with my US recession call, and apparently Treasury buyers are too.

Another post, whenever I get around to it, on election effects. 


Comments:
First off, welcome back.

I've caught up with the news somewhat. I spent a sobering Veteran's Day weekend feebly trying to fix the driveway, wondering what the vets I knew would think about what this country has become.

I knew it was bad but I had no idea that driveways were breeding. (Sorry, just a feeble attempt at "vet" humor!)

I'm extremely comfortable with my US recession call, and apparently Treasury buyers are too.

I can only speak for holders. If I was extremely comfortable then why would I still be up at this hour staring at 30-year TIPS yields with a shocked expression on my face? ;)


 
In all seriousness, we all better hope that 30-year TIPS yields are not indicative of 30-year real GDP growth. Sigh.
 
Another post, whenever I get around to it, on election effects.

I've lost quite a bit of sleep in the last week, revamping some projections based on the elections. I'm trying to find the pony in there, but I don't see any way that the current political configuration will address any of our pressing problems. I was thinking that the fiscal crisis might hold off until 2015 or 2016, but it looks more like early 2014 to me now--and I have no idea what Washington's response to that crisis will look like. My guesses range from the merely imbecilic to the terrifying.

I just threw all my strategic planning right out the window, and have no idea with what to replace it! I'm guessing that an awful lot of entrepreneurs are out there going through the same process--and you can guess what that will do for job growth.
 
I don't mean to hog the thread but...

Small business (NFIB) report for October shows continued weakness in earnings and sales.

You might find this chart interesting.

Small Business Pain

There was an employment pattern trend change in 2009 and it continues.
 
The only way to restore confidence is to stop Obama's anti-growth policies ( essentially every step he's taken wrt the economy, in other words.)

Write your Congressman, get in their faces, recall them if necessary if they choose to acquiesce to Obama's vision.
 
My Grandpa, who joined the 7th Marines and fought at Peleliu and Okinawa, would say good on us.

He always said that if this nation went totalitarian it would be the right wing and not left that went there.

This nation is indeed "Maxed Out", or getting there.

Using credit to hide structural issues of rising wealth extraction from the 95% of this country to the 5%.

The top 5% -- one out of twenty people -- can't continue taking 30% -- one out of 3 -- dollars in this economy.

We tried the housing boom's suicide lending back to the middle class to cover this imbalance, but that only worked until it didn't.

We need to double taxes on corporations in this country and also double the tax burden on the top 5%. This would notionally raise $800B in revenue, aside from Laffer Curve effects.

The national discussion we had this election season was a joke. We've got to start paying our way in this world, at all levels -- city, county, state, DC, and our trade with the world.

To do this is going to require double the tax burden on everyone and reducing spending on stuff we don't need, like an $850B/yr military.
 
Troy - I absolutely agree that we've been using credit to substitute for income, and that it is fatal. It's like trying to cure a toothache by shooting the tooth out.

But have we voted for this? I think we're still living in a fantasy.

Also, if we double the tax rate on corporations, we're going to collapse the economy. The top federal tax rate on corporations is 35% (really 34%-35%) That would be 70% plus anything from 6% to 10% at the state/local level.

You are a fantasist if you think corporations would pay that and expand.

We have close to the highest corporate tax rate in the world now. The problem is that we have all these gimmes and special deals, so a lot of successful corporations pay very little tax.

We'd be much better off dropping taxes on corporations to something like the "socialist" European average of about 25%, but actually collecting it from corporations like GE.

Right now corporations spend a lot of money lobbying Congress for those tax breaks. This really hurts smaller businesses who can't do it, which is a shot to the guts of job creation.

One thing you, me and everyone else has to realize - we are in a competitive world. We can't afford to jack up tax rates much more than in most developed countries.

UK top federal corporate tax is 24%, going down to 23%.

Try the Wikipedia countries by tax rates list.
 
Ah, but the latest scandal in the UK is multinational corpos not paying any tax: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9631702/Foreign-firms-face-tax-crackdown-in-UK-and-Europe.html

 
I'm basically echoing MoM here.

Anon @ 1:27 was right about the anti-growth policies, but those policies have basically been in place for 40 years.

Troy is correct that we've tried to paper-over that structural damage with easy, expanded credit but that is not a solution. Of course, Troy's proposed solution is straight out of North Korea.

Insane tax rates CREATE power-selling and lobbying, they create personalized legislation and its resulting inequality. I may not have the solution to these problems, but I know damn well that doing the exact same things that caused the problems only more intensely is only going to make things worse.

IOW, if the homecoming queen won't go to the prom with you, stalking her, threatening her, and calling her an arrogant bitch isn't going to get you a date.

 
Troy is a wacked out leftist. Let’s be blunt.

Obama blackmailed Petraeus into giving false testimony. You think he is afraid of anything or anybody? He will punish any CEO’s company that doesn’t support him.

The libertarians are fringe and they threw the election to Obama by staying home. Read the text of Ron Paul’s farewell speech to congress. There is a lot of great stuff in it. It provides a frame work. Fringe people will never lead this country however.

http://www.dailypaul.com/263111/ron-pauls-farewell-address-full-text

Anonymous is right. Write your congress person and get in their face. We lost by about 1% not including an adjustment for fraud and without libertarians.

 
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