The Mess That Greenspan Made - Part 416

Wednesday Morning Links

MUST READS
ECB to Meet Amid Calls for It to Print Money – CNBC
Hedge funds lock horns with IMF on Greek debt – Reuters
EU threatens action against Hungary over deficit – BBC
Europe Banks Resist Draghi Bid to Avert Credit Crunch – Bloomberg
Europe’s Pension Threat Grows as Economy Sputters – Bloomberg
Credit Card Firms: They Don’t Just Steal From Cardholders – Taibblog
Corzine Sued by Montana Farmers Over MF Global Money – Bloomberg
The Fed’s Incredible Rate Forecasting Hubris – Forbes
Complex Systems and Catastrophic Collapse – Dollar Collapse
The 10 worst states for retirees in 2012 – MarketWatch
Iran and the West Rediscover Oil as Weapon – Spiegel
The Japan Story – Baker, CEPR

MARKETS/INVESTING
Oil dips to $101 as Iran embargo talks falter – AP
Gold toys with one-month high as demand blooms – Reuters
Doug Kass: Ten Reasons to Rally – The Street
The ‘first five days of January’ indicator – MarketWatch
Gold Is Investors’ Favorite Asset in 2012: Poll – CNBC
Chart of the Day: The Shanghai Bounce – Credit Writedowns
Not enough gold! What’s the solution? – Mineweb
US Mint Silver Sales Surge in First Few Days of 2012 – Zero Hedge
Despite recent dip, gold will provide a safe haven in 2012 – Mineweb
Charting The Price Of Gold… All The Way Back To 1265 – Zero Hedge

ECONOMY/WORLD/HOUSING/BANKING
Will Obama break even on jobs? – CNN/Money
For those hurting most, Fed’s remedies limited – WaPo
Europe’s Crisis Is Germany’s Blessing – Spiegel
Data Show German Economy Stalling – NY Time
Europe’s Vicious Spirals – Project Syndicate
Mafia now “Italy’s No.1 bank” as crisis bites – Reuters
Calif. house price drop 7th biggest in U.S. – O.C. Register
Twelve housing themes for 2012 – MarketWatch
Bernanke Doubling Down on Housing Bet Asks Government to Help – Bloomberg
Fed Turns Over $77 Billion in Profits to the Treasury – NY Times
Fed officials signal more action may be needed – Reuters
Output Gaps and Inflation – Fed Watch

 

Hussman Does Not Hope for a Recession

While making clear that he’s not hoping for a recession, John Hussman still isn’t buying any of this nonsense about an economic recovery in the U.S. that has been gaining strength in recent months, making the following points in his weekly commentary about the data pundits have been using in support of their rosy outlooks:

Three basic issues are at play. One is that analysts aren’t making distinctions between leading, coincident and lagging data. The second issue is that there is little effort to measure the predictive strength of a given economic data point (or set of data points) in explaining subsequent movements in the economy. The third is that analysts seem to be forming expectations report-by-report (what I call a “stream of anecdotes” approach) instead of taking those reports in context of the full ensemble of data that is available at each point in time.

Let’s examine the seemingly most “compelling” data point first – the fact that December payrolls grew by 200,000. Surely that sort of number is inconsistent with an oncoming recession. Isn’t it? Well, examining the past 10 U.S. recessions, it turns out that payroll employment growth was positive in 8 of those 10 recessions in the very month that the recession began. These were not small numbers. The average payroll growth (scaled to the present labor force) translates to 200,000 new jobs in the month of the recession turn, and about 500,000 jobs during the preceding 3-month period. Indeed, of the 80% of these points that were positive, the average rate of payroll growth in the month of the turn was 0.20%, which presently translates to a payroll gain of 264,000 jobs.

Likewise, in 5 of the past 10 recessions, the ISM Purchasing Managers Index was greater than 50 just weeks before the recession began, and the new orders component of that index was greater than 50 in most cases, immediately prior to the recession. Very simply, neither a strong monthly employment gain nor a slight uptick in the PMI are informative signals that recession risk has eased.

As usual, there are some good charts in this piece along with an interesting discussion of the Conference Board’s Leading Economic Indicators.

Interestingly, with upwards of 70,000 job losses “baked into the cake” for the next labor report (due to poor seasonal adjustments in the “couriers and messengers” category as noted here and other data anomalies), a disappointing jobs report three-and-a-half weeks from now just might be enough to knock the wind out of consumers’ sails as they look over their credit card bills and regret having spent so much over the holidays (as noted here).

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Americans Gorge on Credit Card Offers

It would appear that the Federal Reserve’s guarantee of freakishly low interest rates until at least 2013 (soon to be extended into 2014 or beyond) and the resulting push by credit card companies to clog mail boxes with all sorts or tempting offers had the desired effect on Americans as they racked up new credit card debt in November at a rate not seen since before the wheels fell of the global financial system back in early-2008.

The data for December might be even more impressive since, what U.S. citizen in their right mind wouldn’t borrow a thousand dollars or two to get that big flat screen TV and new sound system at Christmas time if they could do so without incurring any interest charges and making only minimal payments for the next year or two.

While some say this indicates renewed confidence in the U.S. economy – one where 70 percent of all activity is based on consumer spending -  others think this is akin to a drunk “falling of the wagon” after almost three years of sobriety.

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Look at What Central Banks Have Done

I’ve been meaning to dig through the European Central Bank’s balance sheet data in order to better understand how it has grown so fast in recent months (as indicated in red below) and why the Germans aren’t up in arms about it.

Someday I surely will, though there doesn’t seem to be any real urgency since the recent spurt of money printing is not likely to end anytime soon. Between now and then, this graphic from The Economist’s Central banks: Crazy aunt on the loose will have to do.

It is fairly remarkable to stop and think how far we’ve come since the world’s central bankers saved us (and, of course, the biggest and most dangerous banks) from sure annihilation three years ago. Who would have ever imagined back in 2005 or 2006 that nearly the entire globe would have “turned Japanese” by now.

Who imagines today that the chart above left might not change for another 10 or 20 years?

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Tuesday Morning Links

MUST READS
Government Set to Sell Foreclosures in Bulk – CNBC
U.S. Consumer Credit Rises by Most in Decades – Bloomberg
Merkozy Upbeat Despite Return of Euro Crisis – Spiegel
Fitch May Downgrade Italy, Not France This Year – Reuters
France, Germany warn Greece to make debt deal – Washington Post
The Neverending MF Global Story: Regulators Block The Truth – Forbes
Financial repression is here and may be helpful – Reuters
12 Wall Street voices to tune out in 2012 – MarketWatch
Fracking Moratorium Urged Until Studies Conducted – Bloomberg
2012 – The Year of Living Dangerously – TBP
The Myth of Japan’s Failure – NY Times
Thank Santa for Dec. jobs – NY Post

MARKETS/INVESTING
Oil rises on Iran tensions, China – AP
Precious metals rally as dollar slips – Reuters
Kass: Where I Now Stand (2012 Edition) – The Street
Investors should root for the gold bugs – MarketWatch
Birinyi Sees Bull Market Continuing in 2012 – Bloomberg
Gold prices to reach $2,000 in 2012 – LBMA – Reuters
Did The Silver Bubble Burst? – Profitimes
Gold Bulls Run Into Chart Resistance – Kitco
McEwen: Metal Prices Will Drive Acquisitions – Bloomberg
Is the Golden Age Ending? – WSJ

ECONOMY/WORLD/HOUSING/BANKING
Consumer Credit Surged in November – WSJ
Ron Paul’s 19th century economic ideas – USA Today
The Great Recession Debate Rolls On – Capital Spectator
Chinese trade surplus widens to beat forecast – MarketWatch
Germany and the ECB: ‘Either Way, We’re Trapped’ – Spiegel
With Work Scarce in Athens, Greeks Go Back to the Land – NY Times
Former PBOC Adviser: China Won’t See Hard Landing in 2012 – Bloomberg
The Foreclosure Crisis: A Government in Denial – New Deal 2.0
As home prices fall, more borrowers are walking away – MSN
Home prices decline 4.3% in November: CoreLogic – Housing Wire
The Fed’s Sleazy Idea Of “Transparency” – Implode-O-Meter
Wall Street’s Big Banks Are the Real Threat to Our Economy – Fox News

 
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