Why Current Depression Will Be Worse Than 1929

From 9-11 Heartache To Bankers Bonuses

Trillions Of Reasons To Audit The Federal Reserve

S Africa Gold Production 'To Continue To Drop'

Foreclosures Down Slightly, But No Stabilization

Another Massive Vegas Casino Goes Bust

Obama Retreats On Capping Excessive Executive Pay

What Really Happened In The Financial Crisis?

Emails Show Fed Pressure On BoA In Merrill deal

Jobs At Risk In UK Healthcare £15B Shortfall

40,000 Graduates Will Join UK Jobless Ranks

After the Crisis, Capitalism Is Discredited - Joseph Stiglitz, Vanity Fair
Creating a Depression Index - Tim Kane, RealClearMarkets
Let's Enjoy the Recession While It Lasts - Elisabeth Eaves, Forbes
There Is No 'Paradox of Thrift' - David Blankenhorn, The Weekly Standard
Finally, the SEC Is Protecting Investors - Thomas Kostigen, MarketWatch
A Fat Tax That's Hard to Swallow - Alex Brill & Aparna Mathur, American
It's Official: The Era of Cheap Oil Is Over - Michael Klare, The Nation
Cap & Trade Fails Cost Analysis - Jim Manzi, Investor's Business Daily
Legal Trade Barriers Must Be Kept In Check - Bhagwati & Panagariya, FT
UBS Sold Tax Evasion As a Service - Ann Woolner, Bloomberg
Spending Stimulus Money Takes Money - Alec MacGillis, Washington Post
Losing Rio Tinto Is Nothing to China - Gordon Chang, Forbes
Is Safer Air Travel Worth the Cost? - Catherine Holahan, MSN Money
D.C. Can't Be 'Hands Off' With GM - Robert Farago, Wall Street Journal

America's socialism for the rich
30y Bond Results: Beware
The China Syndrome
Spike in Interest Rates Could Choke Recovery
Bank Chief Tells of U.S. Pressure to Buy Merrill Lynch

Americans Get Poorer More Slowly - Randall Forsyth, Barron's
So Your Bank Account’s Wiped Out - Mark Steyn, Macleans
What We Need to Know to Avoid Doing It Again - Editorial, New York Times
Bond Bust Fears Are Overblown - For Now - Dwight Cass, Fortune
Discounting the Coming Production Boom - Doug Kass, The Street
Weighing Risk Versus Reward in Russia - Polya Lesova, MarketWatch
Oil Bandits Need a Good Pistol-Whipping - John Crudele, New York Post
Palin's Pipeline Plan is No Pipe Dream - Editorial, Investor's Business Daily
FDIC: Handcuffed by a Lack of Funds and Staff? - Carl Gutierrez, Forbes
Was Obama's Auto Rescue Constitutional? - Charles Lane, Washington Post
Healthcare: Obama's Papering Over the Details - Karen Tumulty, Time
Congress Wants to Pay You to Destroy Your Car? - Editorial, WSJ

G8-STATEMENT/DRAFT (TEXT) =2:
Forbes - NY,USA
... Great Depression. The breadth and intensity of the prolonged downturn have revealed fundamental weaknesses of the global economic and financial systems. ...


European Stocks Rise for a Fourth Week; Inditex, Swedbank Gain
Bloomberg - USA
... on speculation the $12.8 trillion pledged by the US government and Federal Reserve will end the deepest economic contraction since the Great Depression. ...


USA Today report: Workers face worst conditions since the Great ...
Axis of Logic - Boston,MA,USA
... any since the Depression.” These statistics demonstrate that the American ruling elite is carrying out a class-war policy. It is exploiting the economic ...


Markets' worries now are relative
Los Angeles Times - CA,USA
Now, with the Standard & Poor's 500 index up nearly 40% from its 12-year low reached on March 9, the question of whether Great Depression II is imminent has ...


Summers defends Obama's economic policies
Washington Times - Washington,DC,USA
By Jon Ward (Contact) | Saturday, June 13, 2009 President Obama's top economic adviser on Friday defended the administration's efforts to right the ...


Audit 'Ben Bernanke' Bill, HR 1207, Now Has 222 Co-Sponsors!
Daily Kos - Berkeley,CA,USA
Within 15 years of the creation of the Federal Reserve Bank the US experienced it's worst depression. The depression was initiated when the Federal Reserve ...


Summers defends govt intervention as necessary and temporary
International Business Times - New York,NY,USA
Chief White House Economic Adviser Lawrence Summers said on Friday that government intervention was only temporary and that the government was by no means ...


Wachovia report: Florida hit harder by recession
Bizjournals.com - Charlotte,NC,USA
The worst of the recession likely has passed in most of the US, but Florida is on a more difficult road to recovery, according to a new report from Wachovia ...

• Un-American Government Intervention by Peter Schiff
• The Economy Is Still Deteriorating by Vahan Janjigian

Awakening ahead
on bond delusion
The hitherto success of US Treasury auctions fosters the delusion that all this debt is still alright - and that Chinese and other central banks have little option but to stick with the US dollar. A rude awakening lies in store. - W Joseph Stroupe
This is the first report in a three-part article

Awakening ahead
on bond delusion
The hitherto success of US Treasury auctions fosters the delusion that all this debt is still alright - and that Chinese and other central banks have little option but to stick with the US dollar. A rude awakening lies in store. - W Joseph Stroupe
This is the first report in a three-part article

MARKET RAP
Asia looking short of wind
Japan set the pace as Asian stocks continued to gain, but with the tempo easing amid signs of increased volatility, this rally may be running a little out of puff.
R M Cutler runs his eye over the ups and downs in the week's markets.

It's official: Cheap oil era over
It has long been the energy world's nasty little secret, aired by experts, decried by officialdom. Now the United States government's Energy Information Administration is getting on board - the era of cheap and plentiful oil is drawing to a close, and just as China moves faster than forecast to being the top energy consumer. A new era of cutthroat energy competition is on us. - Michael T Klare

CREDIT BUBBLE BULLETIN
No conundrum, again
Alan Greenspan dubbed as "a conundrum" the failure of bond yields to respond to his 2004-05 Federal Reserve monetary tightening. Yet there was no mystery then, nor is there now, in the reverse situation. No conundrum, merely market forces working against the efficacy of Fed chairman Ben Bernanke's helicopter money.
Doug Noland looks at the previous week's events each Monday.

FROM THE BLOG
Obama out of space
Whether the US economy faces inflation or more deflation is difficult to predict. In either case, President Barack Obama's maneuvering room has been exhausted only a few months into his administration. - David Goldman

Krugman: Stay the Course by CalculatedRisk on 6/15/2009 12:06:00 AM

From Paul Krugman in the NY Times: Stay the Course

The debate over economic policy has taken a predictable yet ominous turn: the crisis seems to be easing, and a chorus of critics is already demanding that the Federal Reserve and the Obama administration abandon their rescue efforts. For those who know their history, it's déjà vu all over again — literally.

For this is the third time in history that a major economy has found itself in a liquidity trap ...

The first example of policy in a liquidity trap comes from the 1930s. The U.S. economy grew rapidly from 1933 to 1937, helped along by New Deal policies. America, however, remained well short of full employment.

Yet policy makers stopped worrying about depression and started worrying about inflation. The Federal Reserve tightened monetary policy, while F.D.R. tried to balance the federal budget. Sure enough, the economy slumped again, and full recovery had to wait for World War II.

The second example is Japan in the 1990s. After slumping early in the decade, Japan experienced a partial recovery, with the economy growing almost 3 percent in 1996. Policy makers responded by shifting their focus to the budget deficit, raising taxes and cutting spending. Japan proceeded to slide back into recession.

And here we go again.
...
To sum up: A few months ago the U.S. economy was in danger of falling into depression. Aggressive monetary policy and deficit spending have, for the time being, averted that danger. And suddenly critics are demanding that we call the whole thing off, and revert to business as usual.

Those demands should be ignored. It's much too soon to give up on policies that have, at most, pulled us a few inches back from the edge of the abyss.

Let me add I think the "green shoots" metaphor we keep hearing is wrong. That implies new growth and some sort of immaculate recovery. Yes, right now the pace of contraction appears to have slowed - and that is good news - but even if we are nearing the bottom of the economic cliff, the eventual "recovery" will be very sluggish.

As I've written over and over (see A Return to Trend Growth in 2010? and The Impact of Changes in the Saving Rate on PCE ), the usual engines of recovery - personal consumption expenditures (PCE) and residential investment (RI) - will both remain under pressure (even if they show some sluggish growth).

The end of cliff diving is not the same as new growth.

And look at the unemployment rate ...

Click on graph for larger image in new window.

This graph compares the actual quarterly unemployment rate (in red) with the Obama economic forecast from January 10th: The Job Impact of the American Recovery and Reinvestment Plan

If anything the situation is worse than expected, not better.

Notes From the Investment Underground
Two Reasons Why the Worst Is Yet to Come for Housing
We wrote yesterday that we think the bottom is NOT in for Florida real estate. This view is bolstered by the fact that mortgage rates are spiking up fast.

Next, the Retirement Bubble
- Barron's 6/15/2009
GM's Deal Erased Many Average Americans' Savings
- Washington Times 6/15/2009
States Consider College Aid Cuts; Programs at Risk
- USA Today 6/15/2009
Million $ Views Selling For a Lot Less Money
- Detroit Free Press 6/15/2009
Industrial Towns: Road to Recovery Looks Longer
- Baltimore Sun 6/15/2009
Will Recession Yield a Perm Shift in Spending?
- Chicago Tribune 6/15/2009
Will Recession Put End to Expensive Weddings?
- Milford Daily News 6/15/2009
Demand for Veggie Seeds Is Rooted in Recession
- Washington Post 6/15/2009
Charities Scavenge to Fill More Food Boxes
- Denver Post 6/15/2009
Delta, AMR See Revenue Vanish as Biz Fares Tumble
- Bloomberg 6/15/2009
Postal Service, Operating in Red, Mulls More Cuts
- MarketWatch

A New Financial Foundation - Geithner & Summers, Washington Post
The U.S. Can't Call All Financial Shots - Michael Hudson, Financial Times
Washington Spending Threatens Recovery - Chris Edwards, New York Post
Paulson Caused the Financial Crisis - Anatole Kaletsky, Times of London
Short Sales and Politically Connected Firms - Caroline Baum, Bloomberg
Stay the Expansionist Monetary Course - Paul Krugman, New York Times
Printing Money Isn't the Economic Cure - Bill Fleckenstein, MSN Money
Let's Heed Ben Bernanke's Debt Warnings - Editorial, Los Angeles Times
Politics and the Federal Reserve - Alfred Tella, Washington Times
Chrysler's Bankruptcy Roils the NHL? - Bill Frezza, RealClearMarkets
Philip Morris Gets Its Tobacco Bill - Jonathan Adler, National Review
Oil's Spike Confirms Need for Gas Tax - James Surowiecki, The New Yorker
The Frequently Ignored Flipside of Failure - John Tamny, Forbes
Why Techies Want Fewer Patents - L. Gordon Crovitz, Wall Street Journal

Still Looking for, And Not Seeing, an Economic Recovery - Econbrowser
Paul Krugman's Fear for an American Lost Decade - Will Hutton, Guardian
This Rally May Need a New Source of Fuel - Paul Lim, New York Times
"Dumb Money" Is Now Bullish to an Extreme - Guy Lerner, Technical Take
Will Taxpayers Ever Make Money on Their GM Investment? - Big Picture
Some TARP Banks Are Free at Last - Joseph Calhoun, Alhambra Investment

A New Financial Foundation
- Geithner & Summers, Washington Post
Paulson Caused the Financial Crisis
- Anatole Kaletsky, Times of London
Americans Get Poorer More Slowly
- Randall Forsyth, Barron's
"Dumb Money" Is Now Bullish to an Extreme
- Guy Lerner, Technical Take

Spent: America After Consumerism
- Amitai Etzioni, The New Republic
Get Ready for Inflation and Higher Interest Rates
- Arthur Laffer, WSJ
The Fed's Dollar Lie Called Out by Merkel
- Amity Shlaes, Bloomberg

Today's Foundation, Tomorrow's Crisis: The Geithner-Summers Proposals

Writing in the Washington Post this morning, Tim Geithner and Larry Summers outline a five point plan for dealing with the underlying problems in our financial system, entitled A New Financial Foundation.

The authors are not completely clear on what they think caused the current crisis, but you can back out some points from their reasoning – and the implicit view seems quite at odds with reality.

1. Their view: Regulation is overly focused on safety and soundness of individual banks. Reality: There was a complete failure of safety and soundness supervision. This must be fundamental to any financial system – without this, you'll get mush every time. Read the rest of this entry »

BRIC group plans
its own revolution
Russia's choice of Yekaterinburg, scene of the execution of Tsar Nicholas II and his family, for the summit of Brazil, Russia, India and China may be telling. This week's gathering could prove to be a milestone in developing a new global economic order as the countries seek to move away from US-dollar dependence. - W Joseph Stroupe
This is the second article of a three-part report.
Part 1: Awakening ahead on bond delusion

Hummer's Sichuan link
fuels up with cash
Questions of money immediately cast doubt on how unknown Sichuan-based Tengzhong Heavy Industry Machinery would succeed in buying the Hummer brand from bankrupt General Motors. The Hong Kong share listing of "unrelated" Lumena Resources has now made its chairman, Sichuan native Suolang Duoji, vastly richer, with enough wealth to throw his weight behind the Hummer purchase. - Olivia Chung

THE BEAR'S LAIR
Speculative games
stage comeback
Happy days are here again, with the unimaginably loose US monetary policy giving Wall Street touts every incentive to renew their endless speculative games. It is now clear that President Barack Obama's initial "stimulus" was one of the most counter-productive policy initiatives ever perpetrated. - Martin Hutchinson

FROM THE BLOG
Obama out of space
Whether the US economy faces inflation or more deflation is difficult to predict. In either case, President Barack Obama's maneuvering room has been exhausted only a few months into his administration. - David Goldman

THE MOGAMBO GURU
China sets example to us all
China, in starting to accumulate gold and commodities, shows its skepticism at US Treasury Secretary Timothy Geithner's claim that the US will do what is necessary to bring its budget under control. We should do the same. Right away!!!

CREDIT BUBBLE BULLETIN
No conundrum, again
Alan Greenspan dubbed as "a conundrum" the failure of bond yields to respond to his 2004-05 Federal Reserve monetary tightening. Yet there was no mystery then, nor is there now, in the reverse situation. No conundrum, merely market forces working against the efficacy of Fed chairman Ben Bernanke's helicopter money. (Jun 15,'09)
Doug Noland looks at the previous week's events each Monday.

By John Parry

[/font] NEW YORK (Reuters) - Technical analyst Robert Prechter on Monday said he sees the United States losing its top AAA credit rating by the end of 2010, as he stuck by a deeply bearish outlook on the U.S. economy and stock market.

Prechter, known for predicting the 1987 stock market crash, joins a growing coterie of market heavyweights in forecasting the United States will lose its top credit rating as the government issues trillions of dollars in debt to fund efforts to bail out the economy.

Fears about the long-term vulnerability of the prized U.S. credit rating came to the fore after Standard & Poor's in May lowered its outlook on Britain, threatening the UK's top AAA rating. That move raised fears that the United States could face a similar risk, with the hefty amounts of government debt issued in both countries to pay for financial rescues causing budget deficits to swell.

Prechter, speaking at the Reuters Investment Outlook Summit in New York, said he sees investors' confidence in an economic rebound fading, a trend that will drag the S&P 500 stock index .SPX well below the March 6 intraday low of 666.79 by the end of this year or early next.

"There will be a leg down in stock prices, and it will affect all other areas," including corporate bonds and commodities, said Prechter, who is executive officer at research company Elliott Wave International, based in Gainesville, Georgia.

Prechter, who is known for his bearish views, has repeatedly forecast a steep decline in stocks this year, even as the stock market has rebounded from 12-year lows set in March as optimism about an economic recovery has risen.

Despite the government and Federal Reserve's massive rescues for financial companies and securities markets, Prechter expects credit markets to clam up again as they did in the first phase of the global financial crisis and for the U.S. economy to sink into a depression.

Although U.S. banks' recently passed government "stress tests" that assessed the adequacy of their capital levels to absorb losses and have been able to raise some capital in debt and equity markets, "the banking sector is in severe trouble," as more loans turn bad, he said.

The economy "is obviously heading toward a depression," despite the government's efforts to dodge one, said Prechter.

Federal Reserve Chairman Ben Bernanke has not averted a re-run of the 1930s Great Depression, even though investors are becoming firmly convinced that the Fed has avoided disaster and that the economy has hit bottom.

"It's the next leg down (in stocks) that will make it clear that these things are not true," Prechter said.

[font="Arial, Helvetica, sans-serif"](Editing by Leslie Adler)


U.S. likely to lose AAA rating: Prechter
Mon Jun 15, 2009 5:17pm EDT

6/15/2009
Next, the Retirement Bubble
- Barron's 6/15/2009
GM's Deal Erased Many Average Americans' Savings
- Washington Times 6/15/2009
States Consider College Aid Cuts; Programs at Risk
- USA Today 6/15/2009
Million $ Views Selling For a Lot Less Money
- Detroit Free Press 6/15/2009
Industrial Towns: Road to Recovery Looks Longer
- Baltimore Sun 6/15/2009
Will Recession Yield a Perm Shift in Spending?
- Chicago Tribune 6/15/2009
Will Recession Put End to Expensive Weddings?
- Milford Daily News 6/15/2009
Demand for Veggie Seeds Is Rooted in Recession
- Washington Post 6/15/2009
Charities Scavenge to Fill More Food Boxes
- Denver Post 6/15/2009
Delta, AMR See Revenue Vanish as Biz Fares Tumble
- Bloomberg 6/15/2009
Postal Service, Operating in Red, Mulls More Cuts
- MarketWatch

MBA Tales: Seeking Work In a Recession - Geoff Gloeckler, Business Week
A Bumpy Ride to the 'New Normal' - Mohamed El-Erian, Financial Times
Past Performance Tells You Nothing - Allan Sloan, Washington Post
Will Bad News Be Good for the Dollar Again? - Randall Forsyth, Barron's
Recession and Revolution Are Related - Ross Douthat, New York Times
On Stimulus, Not Everyone Was Wrong - Editorial, Investor's Business Daily
Man Up, Climate Skeptics, Or Miss Out On Money - Eric Pooley, Bloomberg
The 'Dependence On Foreign Oil' Canard - Jeff Bergner, Weekly Standard
Digital Technology and Dollar Signs - Scott Kirsner, Los Angeles Times
The Models Behind the Financial Crisis - Terence Corcoran, National Post
The Recovery Is Coming, Really... - Brian Wesbury & Robert Stein, Forbes
How Obama Learned to Love the Bailouts - David Weidner, MarketWatch
WWII Did Not End the Great Depression - John Tamny, RealClearMarkets
Moral Hazard and the Financial Crisis - Paul Volcker, Wall Street Journal

Is '09 Tracking a '30 Depression Scenario? - Ed Harrison, Credit Writedowns
Thoughts on Obama's Financial Reform Plan - James Pethokoukis, Reuters
Less than Cheery Prospects for Employment Rebound? - Naked Capitalism
Quick--Everybody Back into the Dollar! - Tom Petruno, Money & Co.
GM Chairman Pick Is Pure Politics - Scott McKain, TheStreet.com
10 Basic Rules for Investing - Kurt Brouwer, Fundmastery Blog

Private Equity Sets Their Sights on Battered Banks - Washington Post
Russia’s Alexei Kudrin Signals No Alternative to the Dollar - Bloomberg
China's Car Sales Boom, Reshaping a Way of Life - USA Today
On a Furlough, But Never Leaving the Cubicle - New York Times

Thoughts on the US economy, inflation and the dollar 0 comments
Seeking Alpha - New York,NY,USA
When the economy starts to recover from a recession, unexpected increase in the economic activity can lead to high inflation if the money supply is not ...


State economic forecast bodes ill for jobless
San Francisco Chronicle - CA, USA
"This recession is more extreme than most of the ones we've experienced since the end of World War II, but it's nothing like the Great Depression," Leamer ...



Reuters Banks view regulation plans as just proposals
Reuters - USA
... down the Obama administration's proposals on Monday for the most wrenching regulatory changes since the Great Depression as just that -- proposals. ...


Obama to propose strict new regulation of financial industry
Los Angeles Times - CA,USA
Those are things we have to change," Treasury Secretary Timothy F. Geithner said Monday at an economic forum in New York. The administration also is ...



New York Times Op-Ed Columnist Recession and Revolution
New York Times - United States
By ROSS DOUTHAT Economic fiascos usually have political consequences, and it was only a matter of time before the ripples from the Great Recession produced ...


Forecast: Gradual recovery from recession, but unemployment will ...
Daily Breeze - Torrance,CA,USA
William Roberts, director of the San Fernando Valley Economic Research Center at California State University, Northridge, concurs. ...


US likely to lose AAA rating: Prechter
Reuters - USA
The economy "is obviously heading toward a depression," despite the government's efforts to dodge one, said Prechter. Federal Reserve Chairman Ben Bernanke ...


Bull-market rally gives ground to uncertainty
The Associated Press
Investors, too, have found reassurance in some bad but not horrible economic data that show the recession winding down. The rate of job cuts has slowed, ...


The question: To tax or not to tax?
San Jose Mercury News - CA, USA
Why would you raise taxes, even if it is just on the wealthy and corporations, when the state is facing the deepest recession since the Great Depression, ...

• Stocks Continue Decline as Talk of Recovery Proves Premature by J Clinton Hill
• Beware the Baltic Shipping Index Signals - Part 2 by Mark McQueen
• Looking at This Recession in a Historical Context by Prieur du Plessis

• Fed Fuels Inflation Worries to Avoid Deflation? Whatever Works by Kalpa
• China's Investing in a New Currency... And It Ain't the Dollar by Graham Summers
• Even Under Reagan, Stimulus Took a While to Work by Tom Lindmark
• Charting the Liquidity Drain by Karl Denninger
• Uncertain Future for the U.S. Dollar by Kathy Lien

Note that the talk of regulation on over the counter derivatives now speaks of a clearinghouse for standardized derivatives. Someone just recognized that all the previous derivatives written cannot be cleared because they are almost a transaction without standards. That means all those transactions outstanding are still weapons of mass financial destruction and lack any practical solution.

No break in general confidence can be tolerated therefore QE is moving full speed ahead.

Keep in mind that all actions have consequences - something that the last three generations have no concept of.

The strongest tool for influencing other nations, tax shelter nations and those deemed enemies is to block bank wire transfers in and out of the country digitally. Blocking electronic money transfers in today’s world basically puts the country out of business.

Note where North Korean sanctions are mentioned, money transfers are to be embargoed. Now you know why Switzerland is throwing out its American clients.

This is a reason why Asia’s interest in gold has grown by orders of magnitude. This is another reason why any gold the IMF wishes to sell will disappear instantaneously, never so much as seeing

Jim Sinclair’s Commentary

Turkey is also involved in the journey of world geopolitics going into 2012. Let’s keep a close eye on developments there.

Remember, the key to the success of the surge in Pakistan is SUSTAINABILITY.

Turkey issues warning, cuts rates
JUNE 17, 2009

Turkey’s prime minister defended the country’s military chief and warned against provocation Tuesday, as allegations of a military plot against the pious Muslim ruling party threatened to undermine civilian and military efforts to purge antidemocratic factions inside the state apparatus.

"Efforts to stir up mistrust between institutions will harm…Turkey as a whole," Prime Minister Recep Tayyip Erdogan said, after meeting the country’s top general to discuss the allegations. "The military High Command has shown responsibility and sensitivity from the moment this story broke.

More…

A good exit: Turkey is critical to peace in Iraq
By The Kansas City Star Editorial Board

ISTANBUL — Turkey, in what is being called neo-Ottomanism, is attempting to reconnect with the Muslim world, something Istanbul has largely avoided since the collapse of the Ottoman Empire in the early 20th century.

This is vital to the future of Iraq: Turkey is Iraq’s largest trading partner and probably will expand that role, which means Iraq’s economy is tied to Turkish trade.

Iraq even has oil pipelines running through Turkey. There has been a series of recent visits, back and forth, and Turkey this year agreed to release more reservoir water, essential to replenishing the dwindling Tigris that waters much of Iraq, including Baghdad.

But Turkey can, and probably will, reverse course if it disapproves of the future direction of northern Iraq, or Kurdistan, the region of jagged mountains just across the southern border here. Turkey has an estimated 12 million to 15 million Kurds. That has fed a 25-year-long Kurdistan Workers’ Party (PKK) insurgency, pushing for an independent Kurdish nation, which has left more than 35,000 dead.

More…

US Market

• Market Outlook: Bulls Loosing Momentum? by Jeff Pierce
• The Great Bond Affair by Donald Ingram
• Expect Markets to Have a W-Shaped Recovery by Sandeep Daga
• Wall Street Breakfast: Must-Know News by SA Editor Rachael Granby
• 20 Questions for the Markets by Macro Man
• 2010 Budget: Pie in the Sky by Ed Zimmer
• Investors Are Ganging Up on the U.S. Dollar and Gold by James West
• Bond Trend Getting Uglier by Tyler Durden
• Paulson and Bernanke Watch: Confidence Game via Quotes by Tyler Durden
• Daily Currency Forecasts: Business Activity Lagging in Europe by Ralph Shell
• Obama's Oversight Plan Appears to Overlook Insurers by Daniel Harrison
• Will China Drop U.S. Debt? Unlikely by Drew Arnold
• Bank CDSs Widen by Jean-Claude Kommer
• Confidence in the Markets Continues to Decline by Research Edge
• Current Inflation Numbers Are Meaningless by Tim Iacono
• Industrial Capacity Utilization: Bearish Foreshadowing? by Brian Kelly
• Live Discussion: The Dollar, Inflation and Protecting Your Portfolio by Peter Schiff
• The Case for Depression, Part 1: Unemployment by Moses Kim
• Never Underestimate the Power of Monetary Policy by Calafia Beach Pundit
• Why Stocks Will Collapse This Fall by Graham Summers
• Durable Material Production: Staggering Decline Continues by Sold At The Top
• Regulatory Reform: Just a Beginning by Ryan Avent
• 3 Thoughts on America's Regulatory Overhaul by Ryan Avent
• Seasonal Housing Sales Cycles: Up-Market and Down by Sold At The Top
• 'Rationing': A Dirty Word by Diane Lim Rogers
• $134 Billion in Smuggled Bonds? Almost Surely a Scam by David Goldman
• Behind Krugman's Stance on Inflation by Greg Feirman
• Where Are the Trillions Going? by John Lounsbury
• How to Play the Dollar's Approaching Descent by myWealth.com
• Observations on the VXX:VXZ Ratio by Bill Luby
• What's Behind Soaring T-Bond Yields? by Eddy Elfenbein
• If Credit Markets Are Healing … by Rolfe Winkler, CFA
• The U.S. Move to Principles-Based Regulation by Felix Salmon
• Financial Regulation: The Alphabet Soup Gets Much Worse by Felix Salmon
• The Risk of Global Economic Meltdown by Felix Salmon
• Bonds Priced to 2% Inflation by Calafia Beach Pundit
• Bond Rally May Have Further to Go by FP Trading Desk
• The Dollar and U.S. Stocks by Bespoke Investment Group
• Inflation Not a Significant Problem - For Now by Zacks.com
• BLS: Homeownership Costs, Gas Prices Continue to Rise by Tim Iacono
• The Case for California Defaulting by Paul Kedrosky
• Bearish Bond Sentiment by Babak
• Economic Data All Points to Weak Sales and Low Inventories by Dr. Stephen Leeb
• Slack in the Industrials System by Zacks.com

OBAMA, CHANGE AND CHINA
Group of Two is
the wrong number
Advocates in the United States of a Group of Two power pairing that would link Beijing and Washington in leading a new world order acknowledge China's desire for recognition as a global power. They overlook China's preference for multilateralism and the energy it is devoting to deepening ties around its northern and western borders. - Henry C K Liu
This report is the fifth in a series
Part 1: The song stays the same
Part 2: A dangerous balance
Part 3: The New Deal dollar and the Obama dollar
Part 4: Brzezinski's G-2 grand strategy

Malaysia tries for
economic reset
Collapsing export markets and a declining economy presented Prime Minister Najib Razak with a tough opening challenge to his term in office this spring. Yet Malaysia's stock market has shown strong gains, which could continue thanks to an economic stimulus package - and a rejig of the benchmark index. - R M Cutler

Post-crisis riches ahead
for East Asia leaders
The purchasing power of China, Japan and South Korea will only increase as Western economies recover, with attendant inflation, from this financial crisis. That does not mean those Asian countries will seek to drop the use of the weakening US dollar - quite the reverse. - R Taggart Murphy

Welcome to the G-8
world of illusion
The Mediterranean mood, good Italian food and wonderful views overwhelmed Group of Eight finance ministers last weekend, prompting them to claim breezily that their economies had stabilized. That was easier than confronting the tally of record fiscal deficits, highly volatile exchange rates and unprecedented money expansion. - Hossein Askari and Noureddine Krichene

FROM THE BLOG
Obama out of space
The deadly downdraft of falling demand will continue for years. The US government cannot effectively substitute for private expenditures. - David Goldman

THE MOGAMBO GURU
Road to bank perdition
For all the talk of "green shoots" in the US economy, and even as money supply continues to soar, the state of the country's banks is deteriorating even further, with one in five losing money as bad loans climb more than 20%. We are doomed!!!

The President Fears the Free Market - Peter Wallison, Wall Street Journal
Obama's Money Men Finally Get It - Robert Scheer, The Nation
Don't Rush Regulatory Reform - Robert Bench, Forbes
A Fake Financial Fix - Mark Calabria, New York Post
Wall Street Isn't Buying Obama's Plan - Hamilton & Puzzanghera, LA Times
Only a Hint of FDR in Financial Overhaul - Joe Nocera, New York Times
Obama's Overhaul is Bold in Some Parts, Timid in Others - The Economist
Band-Aids Won’t Fix Bank Ills Fit for Surgery - Mark Gilbert, Bloomberg
The Media's Mask Is Slipping As Deficits Surge - L. Brent Bozell, IBD
Betting on Inflation is a Bad Bet for Your Portfolio - Beth Kowitt, Fortune
Is There An Oil Story Behind the Iranian Elections? - John Tamny, RCM
A VAT Tax Is Not the Answer - Diana Furchtgott-Roth, RealClearMarkets
U.S. Should Also Look to Its Fiscal Health - Kenneth Rogoff, Financial Times
Healthcare Could Break America - Anatole Kaletsky, Times Online

The Fiscal Fed - Elizabeth MacDonald, EMac's Stock Watch
Meet The New Master of the Universe - Evan Newmark, Deal Journal
15 Stocks with Stamina to Survive This Crisis - Clinton Hill, Seeking Alpha
Hyperinflation: The Story of 9 Failed Currencies - Jason Lankow, Mint
Feds to California — Drop Dead - Kurt Brouwer, Fundmastery Blog
In Europe, a Glimpse at Obstacles to Financial Reform - Dealbook

Some Lawmakers Question Expanded Reach for the Fed - New York Times
Obama Maneuvers To Rein In the Risk of Future Crises - USA Today
Guha: Keeping America Safe from Financial Excess - Financial Times
Expansive Energy Bill Advances In Congress - Washington Post

‘Buy China’ Policy Set to Raise Tensions
- Financial Times 6/17/2009
Emerging Economies Meet in Russia
- New York Times 6/17/2009
Obama Sees 10% Unemployment Rate
- Bloomberg 6/17/2009
Mort. Applications Index Fell 16% Last Week
- Bloomberg 6/17/2009
Standard & Poor's Cuts Ratings on 22 Banks
- Portland Press Herald 6/17/2009
F'Closure Freeze Prods Banks to Modify Loans
- San Francisco Chronicle 6/17/2009
For Boomers, Recession is Redefining Retirement
- USA Today 6/17/2009
Florida Will Lag Nation in Recession Recovery
- Orlando Sentinel 6/17/2009
Cali's Credit Rating May Get Cut Further
- Los Angeles Times 6/17/2009
FedEx Posts Bigger Loss, Issues Gloomy Outlook
- Albany Times-Union 6/17/2009
Where Money Is Tight, Fourth of July May Fizzle
- Washington Post

US Market

• The Inflation/Deflation Debate Continues by Tim Iacono
• Southern California Home Prices Rise? Beware of 'Misleading Medians' by Tim Iacono
• A New Productivity Revolution by Jeffrey Korzenik
• Weekly Unemployment Claims Still Indicating a Bottom by Calafia Beach Pundit
• Is There a Government Gameplan for the Long Haul? by Ryan Avent
• Return of the Jobless Recovery by Ryan Avent
• Fed Up with the Fed by Jeff Pierce
• China Counterattacks With a 'Buy China' Policy by Kurt Brouwer
• U.S. Dollar as a Safe Haven Is a Disturbing Idea by Andrew Horowitz
• The Dollar Ain't Picture Perfect, But What's Better? by Hard Assets In
• Unemployment Data: Are We Really Seeing an Improvement? by Kid Dynamite
• U.S. Dollar: Yellow Weeds or Green Shoots? by Kathy Lien
• Treasury Supply: $104 Billion on Deck by Tyler Durden
• Unemployment 'Paychecks' Double by Tyler Durden
• Experts Predict $121 Billion Deficit for U.S. States in 2010 by Research Recap
• Obama's Financial Reforms: Who Stands to Lose by Rick Newman

Greenspan's Ghouls Stalk Obama's Finance Plan - David Reilly, Bloomberg
Regulatory Reform That Falls Short - Steven Pearlstein, Washington Post
Wall Street Fights New Regulations - Editorial, Investor's Business Daily
Obama's Regulatory Reform: Our Money In Danger - Peter Morici, NPR
The Good & Bad of Obama's Finance Plan - Paul Krugman, New York Times
Paul Krugman's 'Liquidity Trap' Claptrap - Alan Reynolds, Forbes
We Need Greater Global Governance - Peter Mandelson, Wall Street Journal
When It Comes to Global Banks, Size Matters - Gillian Tett, Financial Times
Growing Unhappiness with the Volatile Dollar - Steve Hanke, Globe Asia
Starting a Trade War With 'Buy America' - Diana Furchtgott-Roth, Reuters
Searching For a Housing Market Bottom - Janet Morrissey, Fortune
The Bad Economic Fallout From Bailouts - Nicole Gelinas, New York Post
The 'Green-Collar' Job Creation Myth - Thomas Kostigen, MarketWatch
Why Gretchen Morgenson Is So Important - Dean Starkman, The Nation

How Far We've Come from Last December - Brad DeLong, Free Exchange
Why Obama's Economic Gamble Is Failing - James Pethokoukis, Reuters
The Defanging of Obama’s Regulation Plan - Simon Johnson, Economix
BofA’s Paying Bonuses to Keep Top Talent? Shocking! - Deal Journal
Bankruptcy Epitaphs 2009--And We're Only In June! - Reformed Broker
Dollar Ain't Perfect, but What's Better? - Brad Zigler, Hard Asset Investor

THE MOGAMBO GURU
Stupidity without borders
Perhaps envious of Washington's ability to burden the US with debt for generations to come, Beijing and chums from Russia and Brazil are splurging on bonds just when interest rates are set to soar. Truly, the stupidity of governments recognizes no borders.

CREDIT BUBBLE BULLETIN
No conundrum, again
Alan Greenspan dubbed as "a conundrum" the failure of bond yields to respond to his 2004-05 Federal Reserve monetary tightening. Yet there was no mystery then, nor is there now, in the reverse situation. No conundrum, merely market forces working against the efficacy of Fed chairman Ben Bernanke's helicopter money. (Jun 15,'09)

The Retreat of the Shadow Lenders, Why Deflation and not Inflation is the Order of the Day- by Ellen Brown - 2009-06-18

Towards a China Russia Axis? Medvedev, Hu sign joint statement, several coop agreements - 2009-06-17
BRIC countries catch up and overtake G7- by Oleg Mityayev - 2009-06-17

No green shoots

There are no green shoots. Every single piece of economic and market news we observe confirms our view that the current optimism in the world economy is purely based on sentiment and not on facts.

The current corrective rallies in world stock markets were forecast by us in our January Newsletter. Corrective rallies create false optimism and hope. This is what we are seeing currently.

So, what indicators are telling us that things are going to get a lot worse:

· Unemployment is increasing rapidly in all countries

· Government deficits are rising at an accelerating pace

· Many local governments, counties and cities are virtually bankrupt

· Household finances are worsening rapidly

· Bank balance sheets are as leveraged and as unsound today as when the crisis started

· Banks are not recognizing that a major part of consumer loans will never be repaid

· Company failures are rising fast

· Housing market is continuing to deteriorate in most countries and especially in the USA, UK and Spain

· Commercial real estate is in a precarious state. Banks are not writing down their loan books to market values

· US 30 year treasury bond rates are in a strong uptrend indicating the world is becoming increasingly unwilling to finance the excesses of a bankrupt US government

So what are the golden shoots?

Gold has been consolidating for the last four months and is now ready for the next major move up.

We have some very strong technical indicators which tell us that the consolidation in gold will finish at the latest next week and thereafter we will see gold going up strongly in July and for the next few months until the next consolidation in late autumn.

More…

OPM (Other People’s Money). Cheap money got us into this mess. Logically, cheap money will resolve it. Excuse my short hand, but that type of logic can only be described as f**ing idiocy. Policy decisions that continue to expand US’s foreign liabilities (chart 1) will only further devalue the U.S. dollar and send gold closer its equilibrium price (chart 2).

This Time its Different* by John Mauldin
June 19, 2009
I have often written that the four most dangerous words in the investment world are "This Time It's Different." If memory serves me, I have written several e-letters disparaging various personages who have uttered those very words, and gone one to confirm later that it wasn't different. It almost never is. And yet - and yet! - I am going to make the case over the next few weeks that it really is different this time, with only a lonely asterisk as a caveat. What prompts my probable foolishness to tempt the investing gods is the rather large amount of bad analysis based on unreasonable (dare I say lazy or surface?) readings of statistics that is coming from the mainstream investment media and investment types with their built-in bias for bullish analysis. Normally, gentle reader, your humble analyst is a paragon of moderate sensibilities, but I have been pushed over a mental edge and need to restore balance. I anticipate that this topic will take several weeks, as trying to cover it all in one sitting would exhaust us both. It should be fun. But first...


Peter Bernstein, R.I.P.
Sadly, Peter Bernstein passed away at 90 years young on June 5. One of the great honors and privileges of my life has been getting to know Peter and his lovely wife, Barbara. Introduced at a small dinner five years ago, I have been privileged to share many dinners and meetings with him in the years since, soaking up his wisdom. Only a month ago, he made a presentation (by satellite) to Rob Arnott's annual conference and was at the top of his intellectual game. His writing of late has been some of his best. Peter cofounded the Journal of Portfolio Management and truly was the dean of investment analysts.

He wrote 10 books (five after the age of 75!). I am often asked what books I would recommend for insight into the economic world. At the very top of my list has always been Against the Gods: the Remarkable Story of Risk. If you have not read it, then get it and put it on top of your summer list. Capital Ideas is also brilliant. The Power of Gold is a must-read. You can get all three in a set at Amazon (http://www.amazon.com/Peter-Bernstein-Clas...5710&sr=1-2).

Jason Zweig wrote a very moving obituary in the Journal and reminded me of a few quotes I've heard from Peter. "'What we like to consider as our wealth has a far more evanescent and transitory character than most of us are ready to admit.' He urged investors to regard their gains as a kind of loan that the lender - the financial market - could yank back at any time without any notice.

"Asked in 2004 to name the most important lesson he had to unlearn, he said, 'That I knew what the future held, that you can figure this thing out. I've become increasingly humble about it over time and comfortable with that. You have to understand that being wrong is part of the investment process.'"

Peter and I chatted several times during the last year, and he continued to tell me that those who thought we were in for a typical recovery were probably going to be wrong. In private conversations he was very worried about the world, and added much wisdom to those of us privileged to sit at his feet.

Isaac Newton once said, "If I have seen further it is only by standing on the shoulders of giants." In the world of investment wisdom, there is no shoulder higher than that of Peter Bernstein. Rest in gentle peace, my friend. You will be greatly missed.


This Time It's Different*
Ben Bernanke's career will be analyzed and written about for many years. But the one thing that has caused me the most pain is his bringing of the term "green shoots" into the investment lexicon. These may be the two most overused and annoying words of my investment career. Every possible sign of a recovery is anointed with the phrase.

Of late, there has been a tendency for analysts to see numbers or statistics that are "less bad" and interpret them as signs that we are in recovery or at least almost there. They glance back at previous recoveries and say, "Doesn't this look like the last time? When such and such happens it means that recovery is on the way. We should therefore buy stocks" (or whatever).

That we are condemned to read such musings is part of the investment landscape. But that does not mean we shouldn't take the time to look at what the writer of those words is actually looking at. All too often of late, I find these people grasping at straws or failing to understand the data.

My premise for uttering the heresy "This Time It's Different*" is that the fundamental nature of the economic landscape has so changed that comparisons with post-WWII recoveries is at best problematical and at worst misleading.

As we will see next week, we are on a track that looks far more like the Great Depression than the recessions of our lifetimes. To expect a normal recovery cycle, whether it is corporate profits or lending or consumer spending or capital investment or (pick a category) is just not reasonable. This is a period that is fundamentally, in so many ways, different. And the recovery (and there will be one!) will also be of a different warp and woof throughout the entire world economy.

Let me see if I can summarize my thinking before we get into the reasoning behind it.

First, we are at the end of a huge cycle of increasing private debt that ended in an overleveraged society. The process of reducing debt and unwinding leverage is going to take a rather long time. It will not be the typical one or two years and then things get back to an ever-higher normal. We are, using a phrase coined by my friend Mohammed El Erian at PIMCO, on our way to a new normal. We are hitting a massive reset button on our economic world, taking us to some new and lower level of consumer spending, leverage, etc. No one knows what the new level will be, although admittedly we are closer to it than we were a year ago.

At this new normal, we will not need as many malls or factories or stores or new-car plants or car dealerships or any number of other things to satisfy the new normal of consumer desires. As an example, and jumping ahead to a statistic for one minute, capacity utilization is now approaching 65%. Anything under 80% is anemic. Does anyone really think that businesses (in general) are going to invest more money in expanding capacity, in the face of the lowest level of production relative to potential since the 1930s?



The savings rate has shot up from zero to 6% in just a very short time. It used to be 12%. It would not be all that unusual historically for savings to go to 9% or more in a few years. That means that consumer spending will drop by 9%. Since consumer spending was 70% of GDP, that new lower level will become our new normal. And of course, due to population growth and hopefully increasing incomes, consumer spending will once again grow from whatever that new normal will be. But it is going to take some time for spending to reach the level of our productive capacity of a few years ago. We are going to have to shutter a few factories and businesses.

David Rosenberg, now with Gluskin Sheff, offers us this insight:

"What really struck us in the employment report of a few weeks ago was the fact that the only segment of the population that is gaining jobs is the 55+ age category. This group gained 224,000 net new jobs in May while the rest of the population lost 661,000. In fact, over the last year, those folks 55 and up garnered 630,000 jobs whereas the other age categories collectively lost over six million positions. This is epic." [See chart below.]

"Moreover, the number of 55 year olds and up who have two jobs or more has risen 1.1% in the last year, the only age cohort to have managed to gain any multiple jobs at all. Remarkable. These folks have seen their wealth get destroyed by two bubble-busts less than seven years apart ... the Nasdaq nest egg back in 2001 and the 5,000 square foot McMansion in 2007. Both bubbles ended in tears ... and so close together."

As we will see, the housing market is going to take at least two more years to truly recover. Looking at one month's data that shows housing starts up a few thousand as a sign of recovery in the housing market is, well, silly. Housing starts are anemic and the inventory of unsold homes is still at all-time highs (a ten-month supply) with more and more homes coming onto the market through foreclosure.

The multiple causes of the recession are not subject to a quick fix. Offering to pay someone $4,500 to trade in an old car for a new one is a rather pathetic way to try and jump-start consumer spending and the auto industry. Is it not enough that we will "invest" $50 billion in GM, while shrinking the company to a size where it will be difficult for profits to ever pay back that investment? We have to add insult to injury and borrow more money to buy cars. Care to wager whether GM will need more money within five years? (And by the way, I love my GM (Cadillac) car, and will likely buy another one at some point, so I wish them well.)

The "stimulus plan" was ill-conceived and not very stimulative. But the combination of the Fed and Treasury and massive monetary infusions has pulled us back from the brink of Armageddon. But we are not out of the woods yet. There is much heavy lifting to be done on the way to the land of the new normal.


Welcome to the New Normal
Secondly, my premise is that the recovery is going to take longer and be much less robust than any recovery since WWII. With unemployment likely to go over 10%, and with our new normal world not needing as much production of so many things, unemployment is going to stay stubbornly higher for longer than in any previous recovery. We are going to look next week at a very sobering report from the San Francisco Fed that suggests we may be for a longer than usual jobless recovery.

Thirdly, all this is going to affect corporate profits, especially for companies that depend on consumer spending. Those investors who expect corporate profits to rebound in 2010 are likely to be disappointed. (For the record, if you go to the S&P web site, analysts are projecting anywhere from a 40% to a 60% rebound in earnings for 2010 for the S&P 500. I would willingly take the "under" on that bet if I could find any takers.) I think whatever profit recovery that is built into the market at today's prices is generous. It is going to be tough to get much of a return from traditional buy-and-hold equity index investing for some time.

Fourthly, this is a global problem and primarily one in the "developed" world. I think we will find that much of Europe will be in a worse state of affairs than the US. If there are bright spots in the developed world, I tend to think they will be Canada and Australia/New Zealand. The opportunities are more likely to be in emerging markets, after they adjust to the new normal.

What this all means is that we as investors, entrepreneurs, managers, employees, and consumers need to adjust our expectations. For those of us in the US, this is complicated significantly in that we really have no idea what new level of government spending and taxation we will be faced with in 2010 and beyond. For one of the few times in my life, what the government does is likely to have a huge impact on the economy, as there is the potential for a significant shift in the very fundamental nature of government involvement in the economy. It is difficult to see what the new normal will be.

In Continental Europe, your new normal is going to be further complicated by an eroding banking crisis that is likely to put a real crimp in any recovery. China and Asia must adjust to lower US consumer spending. They have built too many factories to supply what seemed like an inexhaustible US consumer. They have to find new internal markets or face their own new normal.

All that being said, at some point, perhaps as early as the third quarter, we could see a positive number for GDP, although I think it will be later. Part of the reason that we will see some positive numbers is that year-over-year comparisons are going to get easier to make. Last summer, when inflation was close to 5% and I was writing that deflation was the real danger, oil was rising from $40 to $160 and food prices were going through the roof. Now oil is back to $70 and so we get lower year-over-year inflation numbers. Over the last two years the price of oil/energy is up, but we measure inflation on a yearly basis.

Housing construction was once about 5% of GDP. Obviously, the collapse of housing construction has had a rather negative impact on recent GDP numbers. But housing is probably close to, if not at, a bottom. Even if it dropped by another 20%, it would have far less of an impact on GDP at the much-reduced level where it is now.

It is similar with inventories. They can only drop so much, and eventually they get to the new normal and stop being a drag on the statistical GDP. We are not in an unrelenting death spiral. There is a bottom. It is like a person jumping out of an airplane. They fall rather rapidly until the parachute opens, and as they get closer to the ground they manipulate the chute to further slow the descent. But until they reach the ground, they are still falling. That is the case today. The economy is still falling, but the parachute has opened. We are going to reach the bottom at some point. We will find that new normal. We just need to adjust our activities and plans around that new destination.

I truly believe we get back to 3% GDP growth and 4% unemployment at some point in the future, but it is going to be more than a few years, especially if taxes are raised as much as is talked about in some circles. But just as in the late '70s, when the outlook was not very bright, things will change for the better. When asked back then where the new jobs would come from, the correct answer was "I don't know, but they will come."

It is the same today. There are whole new technologies and industries that are going to be created in the next decade. Entrepreneurs will respond with new innovations and businesses. Jobs that are not now on the horizon will spring up.

As a society, we are having to work through the excesses of a lifestyle that was propped up by ever-increasing debt and an out-of-control consumerism. That will happen in the fullness of time. But it WILL take time, and we need to adjust our expectations to account for that.

Over the next few weeks, I am going to drill down into the data to show why recovery will take longer and to help you withstand what will be an onslaught of out-of-control bullishness over data that is simply less bad. Let's start with a few easy targets.


The Three Amigos
In 2001, I wrote about what I called the Three Amigos that I watched to give us an indication of the direction of the economy. They were capacity utilization, high-yield bonds, and the (now-renamed) ISM numbers. Watching the direction they go gives us a good idea where the economy is headed. I have not written about them for years (as a trio), so let's revisit our old friends. We saw above that capacity utilization is still in a cliff dive. For there to be an actual recovery, we need to see capacity utilization start to climb back up. That is not currently a very positive indicator.


Credit Spreads - Bullish or Bearish?
A number of commentators have been effusive about how credit spreads have "come back in." And indeed, junk-bond yields have fallen. That is a good thing. Look at the graph below (courtesy of Tony Boehk).



Note that yields have simply come down to levels associated with recessions, and not with actual recovery. What happened last year is that junk-bond yields priced in Armageddon. Now they simply price in a recession and slow recovery. Could they improve more? Certainly. But the easy lifting is done. The direction is right. Let's see how they do the next few months. If those yields keep falling, that would be a very positive sign.


ISM - Is Less Bad That Good?
The Institute for Supply Management released their data for May, and again, commentators were enthusiastic about the increase in the manufacturing index. Green shoots and other signs and wonders were all over the media.

The ISM is a survey of manufacturers about how their businesses are doing. They are surveyed on ten criteria, like new orders, employment, inventories, backlog of orders, etc. (for the full report, you can go to http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942).

From these responses the ISM creates an index. An index number above 50 means that the manufacturing sector is growing, and below 50 means it is shrinking. At the web site above, you can get quite a bit of detail. It is quite true that we have come back from what was the lowest overall index number in 30 years. But we are simply back to the level that was the low in the previous two recessions. The ISM number is "less bad" and that is a good thing, but it is still a bad number. Yes, it is headed in the right direction. Let's look at the actual chart.



Of course, as businesses adjust to the new normal, whatever that level is, year-over-year comparisons will start to be positive. Simplistically, if a business makes 500 widgets a month and sales fall to 300, they will likely report falling production and rising inventories. Over time, inventories will finally settle out as management adjusts, and at some point inventories and production will (hopefully) start to rise. This gets reported as positive. The actual numbers may be down from the peak, but the direction of the company is once again on a positive slope.

When you look at the actual numbers comprising the release, the manufacturing part of the US economy is still contracting. Is it less bad than a few quarters ago? Yes, but it is still bad. The recent number is only slightly higher than the average for the last 12 months. We need this number to be above 50 to talk about an actual recovery in the here and now, as opposed to the future.


Contain Your Enthusiasm
Shipping containers moving into US ports rose by 2% in April, from March. That was cause for celebration in some circles. Buried way down, if mentioned at all, was the fact that compared to a year ago shipping is down 22%. And year-over-year comparisons have been worse for 22 months in a row. At some point, you get to a bottom. We find the new normal. But if the new normal is down 20%, that is a different-looking economy.

This quote came from good friend Dennis Gartman:

"'Stuff' moves by air when it is needed swiftly, but we can compare year-on-year data to get an idea of the relative weakness or strength of the economy. At the moment, the data is still very, very weak. According to the data reported out by the International Air Transport Association, after having touched just barely under $60 billion in '07 and '08, this year the IATA 'guesstimates' that only $40-$42 billion will move into the US.

"We are effectively back to the levels of '00-'04 and we are well below anything since '05. Having reached its worst year-on-year comparison back in December of last year when there was 23% air-transported cargo moving into the US from abroad, these yearly comparisons have remained about 20% lower since. Inventories of 'goods' on the nation's shelves remain high, and so long as that is true then we are going to see horrid, recessionary year-on-year comparisons in this very timely data."

Dennis also looked at rail shipments: "Since the start of this year this year, when the year-on year comparison was a relatively tepid -8%, the trend has been steadily 'from the upper left to the lower right' on the charts. By March, the year-on-year comparisons were averaging -15%. By April, -22%; by May -25%; and now, after a week or two of June, they are -26%. This is not a trend to be tampered with; this is a trend of some very real severity, and for now we fear that it is a trend rather firmly intact. Thankfully, it looks back, not forward; but if the past is prologue to the future, the future still looks rather bleak.

"Finally, there is a glimmering of hope on the rail horizon, and that is that the June figures, as they are compiled, are showing some signs of life. According to the AAR, 'freight traffic on US railroads during the week ended June 13 continued to show signs of gradual improvement ... [as] rail car loadings and intermodal were up from the previous week with carloads at their highest level in 10 weeks.'"

Welcome to the new normal. It is a quite distinctively different world than that of 2006. Global trade is off 10% and there is outright deflation in many places. We will have lots of data to look at over the next few weeks as we explore the new normal, but that is enough for today.

Oh, I almost forgot. The asterisk on "This Time It's Different*"? Human nature hasn't changed. We are still driven by fear and greed. The business cycle has not been repealed. Free-market capitalism will get us back (with a few new rules of engagement). What's different will be the nature of this recovery. All the other eternal truths will remain.

World: Financial Crisis Means More Hunger
By THE ASSOCIATED PRESS
The global financial crisis has pushed the ranks of the
hungry to a record 1 billion people, posing a threat to
peace and security, United Nations food officials said.

Full Story:
http://www.nytimes.com/2009/06/20/world/20...amp;tntemail1=y

Business: In Recession, Strategy Shifts for Big Chains
By STEPHANIE ROSENBLOOM
Retailers' reinvention includes regionalization of
merchandise and midpriced items at high-end stores.

Full Story:
http://www.nytimes.com/2009/06/20/business...amp;tntemail1=y

• nitial Claims Number Indicates Bottom Is Not Here Yet by Research Edge
• Are We in Keynes' Liquidity Trap Yet? by Shalom Hamou