Tuesday, December 11, 2012
Wells Fargo Confirmed, And It Is OVER
Wells Fargo Small Business showed a massive drop, and NFIB confirms:
This is now back to late 2008 levels, i.e., CRASH. The narrative on this one is interesting, but don't even think about the narrative - look instead at actual earnings trends for the last three months:
Rather than the big drop in future expectations being the result of disappointment with the election (an emotional reaction), what really happened is that future expectations had not responded to the dizzying fall in earnings earlier, because business owners firmly expected a change in political regime. When they didn't get it, the result of experience abruptly showed up as a massive decline in future expectations.
This distinction is important, because a fall in confidence based on what one thinks will happen in the future is quite different from a fall in confidence based on what has already happened and removal of hope for the future. Rhetoric can salve the first but cannot redress the second.
Earnings now are also back to where they were in later 2008.
We are facing a more serious recession than I had ever planned for even if the fiscal cliff issue for 2013 is resolved favorably for this contingent.
PS: Post really requires a soundtrack, which you may find here.
Neil's question: There was a degeneration of over 14 points in earnings after April, but yet future outlook did not follow the trend. Now it has abruptly "snapped" into correlation.
0.24% 30-Year TIPS
Enough said. Sigh.
I'm a living example of the small-business confidence dynamic you're postulating, so of course I find it plausible.
But I'm going to play devil's advocate anyway.
How can you differentiate a delayed response to reality, from an emotional response to an event, from a single data series? Is it because of the delayed correlation with the earnings series?
I really believed, in early October, that the preference cascade was forming, and that it would accelerate toward the end. It wasn't, and it didn't.
I was really looking forward to a strong recovery led by the fossil fuel sector. New drilling, new pipelines, lower energy costs would help kick off a renaissance in manufacturing.
I worked as an election judge on Nov. 6. They moved me to a different precinct in the late afternoon. This precinct was in a very hip, urban youth neighborhood. The line was around the block, in very cold weather. These hipsters were waiting two hours in freezing weather to vote.
Even then, I thought, well, this is Minneapolis. Hard core blue. We have a great GOTV system, and it will pay off.
Man, delusional doesn't even describe me. By the time we finished processing through that line (two hours after the polls usually close) the results were already in.
A hard, nasty depression hit me, and stayed with me for about 36 hours. My wife was very concerned. It passed, but it was not pleasant for a couple of days.
I'm resigned to it now. I just have to do the best I can for my family. I won't live long enough to see the really big nasty that's coming.
There is a renaissance in manufacturing -- the "lights out" kind that doesn't create many jobs.
Otherwise, all the work in energy is entirely dependent upon higher prices for that energy, so outside of NG -- which will rise once we can effectively export it -- there's no "cheap" to be had.
There is no single driver for a recovery, and the superficial one we've had so far is based entirely upon cheap borrowing and/or monetization. When that reaches its end, well, watch out below.
There's no end to the "cheap borrowing and/or monetization". Not until we're paying $500 for a loaf of bread--and maybe not then either.
That was the entire point of the election, and I think it's why small businessmen are so depressed. How can anyone justify the small paycheck and long hours to run a business, when after 30 years the government is going to call all of your now-inflated equity "capital gains" and tax it at 60%?
MMT and it's Toolbox
Stephanie Kelton on Modern Monetary Theory's Goals for Full Employment and Government Deficits
From MMT's toolbox;
"Most important: the goal of taxing the rich has nothing to do with raising government revenue. Taxes are used to keep the currency strong and to punish sin."
By George, I think the Pres has been reading that.
Strictly speaking, I think that's correct (though I wouldn't say that "punishing sin" is a proper function of government).
The problem with it is the ancient problem of government. Yes, theoretically you can prevent hyper-inflation by sending a man with a gun to force everyone to use the dollar rather than a more-stable alternative. But at some point you run out of men and guns. It's far more efficient to just maintain a unit of account that everybody wants to use.
Also, I find it laughable that "the rich" cause inflation, but the "poor" do not. I suspect that very soon now, our entitlement spending will provide a case history of how the not-wealthy can be the vector for hyperinflation.
If taxes aren't used to raise government revenue, how do they keep the currency strong?
Theoretically, taxes keep the currency strong by forcing everyone to denominate all transactions in the national currency. In the last 20 years, we've gone one step farther. We've used the "drug war" and "money laundering" as excuses to extend the reach of the IRS and essentially force the denomination of savings in dollars, as well as transactions.
But like I said, eventually you run out of men with guns.
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