Japan's Exports Drop 10% YOY in September, Most Since March 2011, As Imports Spike to Avoid Tax Increase on Oil

Japanese economy may have two consecutive quarters of contraction, which is the definition of "recession".

DPJ's Seiji Maehara, whose ministerial portfolio includes economy, finance, nuclear policy, and national strategy (virtually eliminating the need for the cabinet), pushes Bank of Japan for more monetary stimulus. He is silent on 20-plus years of fiscal stimulus by the Japanese government that has gone nowhere.

The most decline came from exports to the EU, dropping 21.1 percent, followed by exports to China that dropped 14.1%, according to Bloomberg. (I guess they don't round the numbers in 2 digits.)

Imports increased more than anticipated, because "“Everyone rushed to pass customs,” before a tax increase on oil imports that began Oct. 1."

Tax increase on oil imports, when the economy is struggling??? What are they thinking?　Oh I see, they are worried about "global warming". Of course. So the tax on 1 kiloliter of crude oil went up more than 10% starting October 1, according to the information from the National Tax Agency.

From Bloomberg News (10/21/2012):

Japan Exports Tumble 10% as Maehara Presses BOJ to Ease: Economy

Japan’s exports fell the most since the aftermath of last year’s earthquake as a global slowdown, the yen’s strength and a dispute with China increase the odds of a contraction in the world’s third-largest economy.

Shipments slid 10.3 percent in September from a year earlier, leaving a trade deficit of 558.6 billion yen ($7 billion), the Finance Ministry said in Tokyo today. The median forecast in a Bloomberg News survey of analysts was for a 9.9 percent export decline. Imports rose 4.1 percent.

Economy Minister Seiji Maehara pressed the Bank of Japan for more action yesterday, saying the nation is “falling behind” in monetary stimulus and is at risk of another credit- rating downgrade. The BOJ today cut its view of eight out of nine regional economies while Taiwanese unemployment rose to a one-year high, underscoring weakness across Asia after China’s third-quarter growth was the slowest since 2009.

“There’s a high chance that Japan’s economy will have two consecutive quarters of contraction through December,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “The slump in advanced nations is spreading to emerging economies.”

...The decline in shipments, exacerbated by a spat with China over islands in the East China Sea, was the biggest since May last year, when the country was rebuilding supply chains wrecked in the March earthquake and tsunami.

Shipments to China, the nation’s largest export market, slid 14.1 percent from a year earlier. Exports to the European Union fell 21.1 percent, while those to the U.S. rose 0.9 percent. Auto shipments to all markets dropped 14.6 percent.

...The trade deficit was the first in the month of September since 1979 and compared with economists’ median estimate for a 547.9 billion yen shortfall. The rise in imports was higher than a 2.9 percent gain estimated by economists as the country bought more oil and liquefied natural gas.

“The reason behind the increase is very simple,” said Shohei Setoh, a Tokyo-based manager for a crude oil trading group at JX Nippon Oil & Energy Corp. “Everyone rushed to pass customs,” before a tax increase on oil imports that began Oct. 1.

(Full article at the link)

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CNBC Cheerfully Announces Housing Depression

Permanently bullish (probably by decree from the higher up) CNBC reports that home values have declined 26 percent since the housing market top in June 2006.

Since the decline is more than 25.9% decline during the Great Depression, by golly the housing market is solidly in depression! And it's the 53rd consecutive months (as of November) that home values have fallen!

But if you listen to the timbre of the article, you may conclude it's a jolly good fun thing, just like the comedy "Home Alone"...

From CNBC:

As the economy revs back to life, with signs of hiring on the horizon, the housing market is being left behind like Macaulay Culkin in “Home Alone.”

In the past few years, we’ve all been careful to choose our words carefully, not calling it a recession until it fit the technical definition and avoiding any inappropriate use of the “D” word — Depression.

Things were bad but the broader economy never reached Depression territory. The housing market, on the other hand, just crossed that threshold.

Home values have fallen 26 percent since their peak in June 2006, worse than the 25.9-percent decline seen during the Depression years between 1928 and 1933, Zillow reported.

November marked the 53^rd consecutive month (4 ½ years) that home values have fallen.

What’s worse, it’s not over yet: Home values are expected to continue to slide as inventories pile up, and likely won't recover until the job market improves.

And while the president is physically protected in an emergency, whisked to a bunker at an undisclosed location, the actual White House is not: The value of 1600 Pennsylvania Avenue has dropped by $80 million, or nearly 25 percent since the peak of the housing boom. It’s current value is $251.6 million, according to Zillow, down from $331.5 million.

At the end, the writer (Cindy Perman) even starts to sing the National Anthem. I just couldn't reproduce that singing above, as I felt so put off by her mindless dribble.

In many parts of the country, homeowners would be lucky if the decline is only 25%. After the real estate bubble burst, home values in Tokyo declined more than 90% from the peak, while commercial properties in central Tokyo saw the value dropped to less than 1% of the peak. Some parts of California so far have seen 75% decline since the top.

You would hope that is the bottom...

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Obama to Give Buffett the Presidential Medal of Freedom and to a Bunch of Other Worthy Recipients (like Papa Bush)

and to a musician, a baseball player, a basket ball player, a labor union leader..

The Presidential Medal of Freedom is the highest civilian award that is bestowed on individuals who have made "an especially meritorious contribution to the security or national interests of the United States, world peace, cultural or other significant public or private endeavors."

Yup. The world has gone nuts.

From Reuters:

President Barack Obama will name billionaire Warren Buffett one of fifteen winners of the 2010 Medal of Freedom, a White House official said on Wednesday.

Buffett, one of the world's most successful investors who has donated a vast chunk of his fortune to charity, will receive the medal at a White House ceremony early next year. The award is the highest U.S. civilian honor.

No wonder Buffett is singing the praise of the government.

Alongside Buffett, these people will receive this highest civilian honor in the country:

President George H.W. Bush
Chancellor Angela Merkel
Congressman John Lewis
John H. Adams
Maya Angelou
Jasper Johns
Gerda Weissmann Klein
Dr. Tom Little (Posthumous)
Yo-Yo Ma
Sylvia Mendez
Stan Musial
Bill Russell
Jean Kennedy Smith
John J. Sweeney

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Homeless Exec Living Off Reward Points

One good thing (I think) about a severe recession is that people gets really creative and entrepreneurial.

Homeless Executive Lives Off of Rewards Points
(3/12/2010 CNBC via Yahoo Finance)

"Here's proof that all those frequent-flier miles and rewards points you've racked up are good for more than a subscription to Golf Digest.

"Jim Kennedy, a 46-year-old executive in Southern California, went from six figures to homeless in less than two years after he lost his job as a corporate-development manager, had to file for bankruptcy and then lost his Newport Beach condo to foreclosure, the OC Register reports.

"Now, he's using the more than one million frequent-flier miles and rewards points he accrued in his career to survive and help stretch the few dollars he has.

"He's not your typical homeless guy: He drives around in a leased BMW, but hops from hotel to hotel, including a stay at the Motel 6, and tries to keep his food budget to $5 a day. He looks for places with free Internet to to facilitate his job search.

"He's found that mixing cash and points gives you the best value. This week, he's at a Holiday Inn in San Clemente Calif., paying $25 a night, after cashing in 5,000 United Airlines (NASDAQ: UAUA) miles. Bonus: Free breakfast!" [The article continues.]

One million frequent-flier miles should keep him on his feet and roof over his head for about 5 months, he estimates.

His Twitter shows he's now getting a lot of publicity. Hats off to him, and best of luck.

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Op-Ex Crash Didn't Happen. Now What?

The alarming drop in the stock futures overnight didn't result in a huge drop in the regular hours Friday. After the initial drop, all major indices recovered into positive territories. And just like so many Op-Ex (option expiration) day, the market ended basically flat - killing both puts and calls but more puts than calls.

So what was the point of this Fed's exercise of announcing the discount rate hike on Thursday after hours, other than letting Goldman Sachs make a ton of money from fearful investors in the fter hours futures market (I'm guessing, of course)?

As soon as the rate hike was announced, the financial media, particularly CNBC, went on overdrive to spin it positive. It was unreal. Here's one from CNBC, in early Friday morning before the market opened:

Who's Afraid of the Fed? Market Actually Wants Rate Hikes
(Jeff Cox, 2/19/2010 CNBC)

"Forget the cosmetic move of raising the discount rate—the day the Federal Reserve really decides to start putting the brakes on growth could actually be a happy occasion for the stock market.

"Raising interest rates and stemming the flow of liquidity to the economy might otherwise be considered a barrier for stock market growth, but many investors are in fact eagerly anticipating that the move will add another level to investor confidence.

"Though the Fed announced a surprise hike in the discount rate that it charges banks to borrow money, the central bank continues to indicate that its more significant funds rates will stay near zero for the foreseeable future.

""Most people assume that the day the Fed starts tightening, the market goes down. That might be the short-term reaction," says Uri Landesman, head of global growth strategies for ING Investment Management. "I'm going to be happy because it's going to suggest to me that things are starting to get better.""

The article continues, so you can click the link above and be happy that everything will be alright.

I have a hard time swallowing the line. I don't see "the flow of liquidity into the economy", as this CNBC writer clearly does see. If he is defining "the economy" as Wall Street economy, then he may be right. But on Main Street, outside the big corporations, money and credit are not there. Banks continue their utmost effort not to lend to businesses and home buyers. They continue to cut back on credit to consumers. And they continue to prosper.

That's all the Federal Reserve cares, I'm afraid; that its member banks, particularly the big ones, continue to prosper. The Federal Reserve probably couldn't care less about Main Street economy, even if that's supposed to be part of their mandate. Of course they don't say that; instead they say the Federal Reserve must remain "independent" - meaning "independent of the fiscal policies of the government that includes economic well-being of the nation".

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'Trust' May Have Been the Biggest Casualty in Banking

in this recession triggered by the financial crisis

I went to a local branch of a big, national bank yesterday to deposit checks. I went inside instead of using ATM machine. The bank was crowded with people waiting to do transactions. The bank greeters were back. Two of them. There were people sitting in the cubicles taking to the bankers.

Six months ago, this branch looked deserted whenever I went. Usually only 2 to 3 tellers were open, and there was no line, no greeters. Almost all the tellers looked barely out of high school.

That changed, I think, about two months ago. At first I thought it must be something to do with the holiday seasons. But the branch continues to be crowded. Now half the tellers look like they actually have some work experience.

I asked the person who did my transaction, "Is the bank crowded today?" She said it was, and that it had been like that for some time. "I wonder why," I said. She replied, "I think people are more worried about their money these days. They don't trust banks. I hope my money is safe with this bank..."

I was rather taken aback by her assessment. This is the branch of a bank that scores relatively high for a large national bank in terms of customers trust.

This New York Times article from February 9, 2010 lists the bottom 7 banks in terms of trust (as percentage of customers who agree with the statement "My financial provider does what's best for me, not just its own bottom line"). Not surprisingly, they are large national and regional banks: Bank of America, Chase, Capital One, TD/Commerce, Fifth Third, Citibank, and in last place, HSBC.

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Confusing Employment Numbers from Government, the Stock Market Drops Another Day

The market is not believing the government numbers today. January unemployment number "unexpectedly" dropped to 9.7%, but the country lost another 20,000 jobs at the same time.

Yeah right.

The latest adjustment to the Birth/Death model added over 1 million job lost on top of 7.2 million job loss since the recession started in December 2007. Now the total job loss since December 2007 is $8.4 million, the highest since World War II.

The model was off by 13%, and the government has no intention of abandoning it. Why? Probably because it is highly manipulative to suit their changing needs.

The U.S. major stock indices, after the bottom fell out yesterday, cannot even sport a DCB (dead cat bounce). Dow is currently down 135 points to 9,865. Goodbye, Dow 10,000. It is going to be a huge overhead resistance, coming from below (if that ever happens).

I should have gotten "Dow 10,000 2.0 Hat" from NYSE. Maybe I will still do, as a sentimental memento. For I am not so sure if the version 3 ever happens.

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Government Policies Weighing Down the Economy

And the stock market is acting accordingly, at least for today. Dow Jones Industrial Average is down over 245 points (or 2.4%), to 10,025, threatening to break down below 10,000.

Hedge fund manager Jeff Matthews says the government policies and programs are weighing down on the economy. Uncertainty and direct fear, he says, over what the government might do (so far it's "Let's tax everything and let's spend everything and more.")

He talks about a friend of his, who runs a small manufacturing companies. He told Matthews that he is not going to higher anyone in the U.S. any more when Matthews asked him about implication of health care reform.

President Obama's temper tantrum (against bankers, GOP, Supreme Court, $3.8 trillion budget thrown at us...) over the Massachusetts special election result hasn't helped anything, anybody, except for the Democratic supporters who clearly approve highly of his renewed aggressive stance.

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No Wonder Big Banks Make Money

An interesting thing I've noticed on my past few visits to the local branches of big national banks like Wells Fargo, Bank of America, and Chase.

All these branches are staffed with people who look barely out of college if not high school. Nowhere can I find someone who looks over 30. And it's not just tellers at the windows. So-called bankers, with own cubicles and talking to customers sitting at their desks, look no older than 30. I have no idea how it is in other cities, but where I am, that's what I see these days.

One such banker in one of the branches not only looked and talked as if he hadn't quite finished his community college courses but also kept chewing gum all the time we were talking. I went to another bank, and walked up to a teller and told him I needed to pay my credit card bill. "Excellent choice!" he exclaimed.

Ummm, do I have any choice? Probably his most recent job was an waiter in a family restaurant.

While I am happy that these young people getting their careers started as bankers, I'm just wondering what happened to those people whom I used to see at those branches who looked over 30 and who seemed to know what they were doing? Were they fired?

These young bankers cannot be earning a lot more above the minimum wage. (They shouldn't, judging by the way they interact, or cannot interact I should say, with their customers.) No wonder these big national banks make profits. They hire cheapest people, they've received practically free money from the government (i.e. taxpayers), they cut off credit limit (or worse, simply close the accounts) for millions of card holders just when they need extra help, they refuse to lend to businesses and turn down mortgage applications in the last minute.

The irony is that all the 'money' for card loans and home mortgages have been created by these banks out of thin air. Fractional banking at its best for them, worst for the rest of us. It's a myth that banks make loans out of deposits or out of excess reserves that they keep at the Federal Reserve. They do no such thing. (Read this paper by the New York Fed: excess reserves have nothing to do with banks' making loans.) It cost banks absolutely nothing to create new money. As long as they get to collect interest on those loans, it's an infinite profit for them without risking any real assets.

Returning TARP money won't earn them praise from anyone but themselves and their sycophants and apologists in the media.

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Wal-Mart in Silicon Valley Packed on Black Friday

Barron's Tech Trader Daily reports that Wal-Mart in Mountain View, California was jam-packed on Black Friday.

And that was supposed to be good, that the recession (depression, whatever you want to call it), may be indeed over (as reported by Sergey Brin's mother-in-law).

Wal-Mart in Silicon Valley?? (What is the world coming to?)

Mountain View is located in the middle of Silicon Valley. I used to live in the Valley when I went to school and several years afterwards. It was an affluent area (still is) and there was no such thing as Wal-Mart. San Antonio Shopping Center, which always looked half-deserted, had Sears for eternity but that was about the extent of mass-discounter presence. Now people flock to Wal-Mart??

Stanford Shopping Center has always been upscale. If people flooded that shopping center and were buying, then maybe, the recession is on hold for now.

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Tax, Tax, And More Tax to Prosperity!

for the U.S. government. Not for the citizens.

Health care deform, oops "reform": increased tax for the "wealthy" as defined by the government, penalty for anyone who don't buy insurance, increased cost (insurance cost, medical equipment, pharmaceutical drugs) for everyone because all these entities will be taxed on their gross revenue of their services and products.

Crap, oops, cap and trade: even the Obama administration admits it will be equivalent to 15% income tax hike, so that Mr. Gore and his ilk can mightily profit from their "entrepreneurship". If the government says 15%, double that as a matter of course. They will cook data to fit the "religion".

War surtax: 1 to 5% extra for everyone with a taxable income, 2 to 10% extra for every corporation with a taxable income, whether you support the Af-Pak war or not.

Trading tax (yes they are yakking about it again): 0.25% on the trade. You buy 100 Apple Inc. (AAPL) shares and pay your discount broker the commission ($6 to 12), and you pay the tax of $50 so that the government can create new jobs. If you use a broker who lets you trade for free, the trading cost skyrockets to infinity. If you trade AAPL 5 times a year (buy or sell) and AAPL remains more or less at $200/share, that will be the end of your first $100,000 transactions for which the government will generously refund the tax. If AAPL surges to $300 you will get to fund the job growth with your $75 that you would have kept otherwise.

What a joke. Every single one of them. I would be surprised if Americans take them lying down. But I've been surprised before.

It would be a miracle if the economy and society ever recover. But a miracle has happened before, I suppose.

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Communist-Era Goods Back in Vogue

... sign of times, perhaps.

Communist consumer goods make comeback
(11/8/09, AFP via Breitbart)

"Once the butt of jokes the world over, communist-era East European goods from sweets, to rustic washing machines and clunky cars are all the rage again."

"Two decades on, many who then welcomed change now want to turn the clock back by eating Szerencsi chocolate, driving Trabant two-stroke cars or using Frania washing machines to wash carrots."

You can read the entire article by clicking on the link above. The article attributes this renewed interest in Communist-era goods as nostalgia for bad old times for older generation, and curiosity for younger generation.

Well, it looks like they are survival goods to me.

• A washing machine that you can operate without electricity (Poland's Rotor Frania)


• A car so rudimentary you can fix yourself (Traband, Skoda, etc.)


• A condiment sure to enhance any bad-tasting food with MSG (Croatia's Vegeta)

I still remember what one of my collegues told me in a company I used to work for. He was an engineer, and unlike other company engineers and scientists who went to western Europe or the U.S. to study, he went to Soviet Union. He said he came away pretty impressed. He said it was really true that the Soviet TV set could explode, but also said that the vehicles there (I think he was mainly talking about heavy trucks) could be fixed from within the vehicle. Much of the vital parts can be reached from within, he said, and you wouldn't need a mechanic.

I also recall Communist-era public housing in east Berlin was really getting popular in 2002-2003. It was partly due to Goldman Sachs and Morgan Stanley hyping the real estate in Berlin at that time, but I wonder if that continued...

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"Going Commando" Index to Gauge Economy

Want to figure out where the economy stands? Look no further than men's underwear.

How is the economy doing? Look in your underwear drawer
(Bruce Watson, 9/29/09 Daily Finance at AOL)

"It looks like 2009 was a bad year for men's underwear. Mintel, a consumer research firm, says that sales of men's skivvies dropped 2.3 percent from 2008. Meanwhile, NPD Group, another firm, argues that the decline was more on the order of 12 percent. Either way, it's a fair bet that many underwear drawers are looking a bit ragged.

"Some analysts refer to this economic measure as the "underwear index." While seasonal outerwear, flashy luxury clothes, and women's lingerie are often tied to seasons or holidays, men's undies tend to be pretty straightforward. They are replaced as needed, which means that their sales should remain relatively constant.

"In this context, 2009's drop in the sales of men's underwear means that many men are walking around with busted elastic, fabric that has worn thin, or a much-reduced stock of spare BVDs. Given the difficulty of getting a few extra months out of a pair of boxers, it suggests that many men are reaching the end of their easily-absorbed cutbacks. After all, while eating out less or taking fewer trips can be a minor annoyance, wearing tired underwear or -- worse yet -- going commando suggests that consumers are truly caught on the horns of a financial dilemma."

Don't laugh. The underwear index is a favorite of Alan Greenspan.

"While an unusual measure of the economy, the underwear index is reportedly one of Alan Greenspan's favorite statistics to consult. Part of its significance probably lies in the possibility that, for many men, buying underwear is largely unconscious. When asked about the state of his underclothes, one consumer (who chose to remain nameless) stated, "Actually, I'm running out. I don't know how it happened." He went on to note that he has been cutting back on some expenses. As the drop in underwear sales continues, it seems to be shifting from an unconscious to a conscious trend; in the process, it is becoming increasingly significant, as consumers deliberately sacrifice comfort for cash."

The article continues. You can read the rest of the article by clicking the link above.

According to the writer, the underwear index, like the unemployment rate, is a lagging indicator. If one examine the index components, there seems to be a subtle shift from boxers to briefs (briefs sales up 0.6% against boxers sales), indicating cash-strapped consumers seeking more bang for the money. The article cites a 7-pack of BVDs costing the same as a 2-pack of boxers at Hanes.

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Japan's Tankan Improves, Nikkei Drops Below 10,000

because recent yen surge wasn't priced in ...

Japan Tankan Sentiment Rises for Second Quarter
(9/30/09 Bloomberg)

"Oct. 1 (Bloomberg) -- Confidence among Japan’s largest manufacturers rose for a second straight quarter as global government stimulus spending rekindled exports.

"The Tankan index of sentiment among large makers of cars, electronics and other goods climbed to minus 33 from minus 48 in June and a record low of minus 58 in March, the Bank of Japan said in Tokyo today. A negative number means pessimists outnumber optimists."

Now the Tankan sentiment has recovered to the level of 2001 recession, according to Bloomberg. Although the numbers improved, companies continue to slash inventories and slash/withhold capital investment. Capacity utilization also remain low. 1/3 of Toyota's factories will remain unused, and the company will reduce capital investment by 36%.

The Tankan result is weighing heavily on Nikkei, which dropped 143 points to dip below 10,000 at the close of the morning session. Currently (at 1:18 PM Japan Standard Time) it is down 165 points to 9,967. The reason?

Japanese yen.

Companies surveyed in the Bank of Japan's Tankan based their business outlook on Yen/Dollar exchange rate at 94.50 yen/dollar, according to Japan's Nikkei article (in Japanese). Yen is currently trading in Japan at 89.79-89.82. Most exporters have priced in yen fairly stable at mid 90s. If the pace of appreciation of the currency is gradual and over time, stronger companies can still adjust, without abandoning their manufacturing base within Japan. However, rapid appreciation in short time to mid to lower 80s could finally kill off manufacturing in Japan.

It would then have little choice but to become like the U.S.: consumer-driven economy with majority of employment in the service sector, and with increasing government share in the economy.

According to the stock market commentary at Nikkei Net, the market does not like the uncertainty of the new Hatoyama administration, which is yet to clearly define its policies.

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Solution to China's "Cancer Villages" Is Health Insurance??

and solution to economic crisis is welfare reform?

Reuters ran the article about the dire plight of Chinese peasants suffering debilitating and deadly disease (various forms of cancer) due to contaminated water from a state-owned mining operation nearby.

China's cancer villages bear witness to economic boom
(9/16/09 Reuters)

It's a heavy metal poisoning (cadmium, lead, zinc, etc) poisoning of the river that the villagers use for bathing and irrigation for rice crops, which are contaminated with heavy metals and which the villagers sell. They use well water for drinking, but the wells are all contaminated with heavy metals. How or why they continue to use the river water is totally beyond me, as it doesn't look like water. The article describes the water, "The river's flow ranges from murky white to a bright shade of orange and the waters are so viscous that they barely ripple in the breeze."

The article says this is the price that China is paying for its rapid economic expansion. It is indeed, as the Chinese government ignored the warning of environmental disaster from the developed countries as an affront to China's ability to grow. The government continues to ignore.

But what I want to focus on is the last part of the article about China's health care system (or lack thereof). I find it a bit odd to focus on the health care system when the first and foremost solution to be applied right away is to stop further contamination of water and soil immediately and start the remedial process. The very first thing that the government should do is to shut down the mining operation. Instead, the article says people continue to suffer because they don't have national health care safety net in the form of some kind of national health insurance scheme.

Huh?

Then I heard on the BBC Radio (which by the way has started to churn out very good programs in business and finance, again) a program on China's consumers that made me suspect that the major U.S. financial institutions (such as Morgan Stanley) are working very closely with the Chinese government to lay out the infrastructure for nationwide health insurance program and other social safety nets.

Business Daily: China's consumers (9/16/09 BBC Radio)

The program is about China's export and domestic consumption, discussing how Chinese could be induced to save less and spend more. 9 minutes into the program, Stephen Roach, chairman of Morgan Stanley Asia is interviewed. He says China needs much greater stimulus for internal private consumption by building social safety net. Social security, private pensions, medical insurance, and unemployment insurance.

Coincidence? I don't think so.

U.S. financial institutions are very good at what they do - smell a big, big wad of money and pile on to the opportunity. What more lucrative than working closely with a government that virtually controls all aspects of the nation's social, political, and economic life (they are still Communists, remember?)? Instead of getting back the clean water and soil, the Chinese peasants in the Reuter's article would get a government-mandated health insurance. The premium would be paid by the peasants from their meager earnings, with no guarantee that they would get the medical treatment that they need as there is no infrastructure yet. But the government would have a huge chunk of money in the "social safety net" available for investment.

Morgan Stanley's Roach and the Chinese official interviewed right after Roach are in perfect agreement. The logic is that if Chinese people feel they are well protected by the government (social security, health insurance, unemployment insurance, etc.) they will spend more instead of saving more to take care of themselves in times of trouble.

So the world still faces the biggest economic recession since the Great Depression. The U.S.'s priority is health care reform. Japan's priority is climate change. China's priority is welfare reform.

I want to invest in a country where the economic recovery is the first priority in an economic recession. If there is such a country left, that is.

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Obama and His Media on the Economy

Obama and the Economy [emphasis is mine]
(Llewellyn H. Rockwell, Jr., 8/6/09 Lewrockwell.com)

Travel with me back to yesterday, the early days of the Reagan administration, when taxes were being cut and spending increases were being curbed (the actual cuts were few), and when journalists were losing their heads about the supposedly catastrophic state of the economy.

The prevailing ethos in those days in the White House was somewhat sensible. The idea was that the recession had to be permitted to run its course. The late 1970s inflation coupled with recession had wrought dollar depreciation plus high unemployment and high interest rates. These were part of the adjustment process. No one doubted it.

Now, there was a time, only a few years earlier, when the Keynesian orthodoxy claimed the power to control the economy the way we control our cars. One could adjust the inflation up to drive unemployment down, and adjust the inflation down and pay the price in higher unemployment. It was a trade off, and the wise economists would decide what was socially optimal.

One can only marvel at the naïveté, but it all came crashing down with the advent of the simultaneous appearance of both inflation and unemployment, and Keynesian confidence was shaken to its core. The better members of the Reagan team were more realistic. They believed that the goal of government policy was to create the conditions for economic growth, and if that meant letting bad policies wash themselves away during the transition, so be it.

The journalistic establishment at the time hated them and their free-enterprise ideas. So, of course, all bad news was treated as not only worse than it really was, it was also blamed on the Reagan administration, as if it had the control over events that Keynesians imputed to government. So, if times were bad, who were to blame but the people in control?

Every day the headlines blasted away, as if the media establishment were trying to whip the public up into a hysterical frenzy against tax cuts. People were encouraged to blame That Man in the White House for all existing evil, and the nightly newscasts were filled with furrow-browed anchors doing stories on the poor suffering masses and their desperate plight. Their political agenda was aggressively on display, brazen beyond belief.

And then something amazing happened. The economy began to recover. Unemployment fell, inflation crashed, interest rates came down, and growth returned. The criticism later changed: the Reagan administration was accused of being too pro-growth and unleashing greed and "cowboy capitalism." But it fell on deaf ears, and Reagan won a landslide reelection in 1984.

Now, I'm not saying that Reagan was laissez-faire or that the economic recovery didn't owe something to a newly fashioned form of military Keynesianism. Rather, my focus here is on the spin: the press hated him, and exaggerated the failings of the economic structure in order to destroy policies it hated.

The contrast with the Obama administration can't be more stark. No one in these ranks said that malinvestments have to be washed out of the system and bankruptcies and unemployment must be tolerated for a time in order to get back on a growth. Nay, nay, they pulled out the old bag of tricks and claim that they only needed to loot the public of hundreds of billions and spend it on building up government, and then, wow, like magic, the entire economy would come back to life.

But it hasn't. The stock markets survive, but that's no indication. Stock markets are never better performing than during a hyperinflation. Interest rates are rock bottom, but only through artificial means. Gross Private Domestic Investment is still falling off a cliff, having already completely erased ten years of investment from the record of history. Here is a fundamental factor that suggests that terrible things are still to come our way. And I guess I'll have to put this in italics because the point seems to be lost in the shuffle: unemployment is still rising, even soaring straight to double digits!

The sociology of this intrigues me to no end. Unemployment is one of the human elements that journalists are supposed to glom onto. Oh, look at poor Bob and Jane and how they lost their jobs and have nowhere to go, etc., etc. Talk about human interest! Where are the weepy stories about the plight of people wandering around with no work? Instead, we get happy clappy stories about how things are not nearly as bad as they might be had the great and powerful Obama of Oz not appeared to save the day. There is also the remarkable spin that things are getting worse, yes, but at a slower pace than before – an observation that might be most commonly heard in Hell.

Obama himself has other lines.

"In the last few months, the economy has done measurably better than expected."

Well, that depends on your expectations, doesn't it? It is irrefutable. But the press is glad to be the echo chamber. "Figures released last week showed that the economy contracted more slowly in the second quarter than many economists had expected."

And then there are the benchmarks, and that might be the scariest part of all. The Obama administration is convinced that we can have no real and lasting recovery until homes go up in price. A top adviser said: "until we see a robust recovery in housing markets, housing prices, in jobs and family income, we’re not anywhere near out of the woods."

This is precisely the same inanity that afflicted the Hoover and Roosevelt administrations. They saw falling prices as the problem to be remedied rather than the saving grace of an otherwise abysmal economic environment. So they kept trying to stamp out good things thinking that they were bad things, effectively burning the crops instead of killing the rats that were poisoning the wheat following harvest.

We can fully expect the mainline press not to understand economics. I can deal with that. But not even to draw attention to the awful reality of the current economic situation, simply because many members of the mainstream press are sympathetic to the idea that the government should be stealing ever more money from us for the state? Here is where ideology leads to blindness, which leads to the worst form of propaganda.

I suspect that they will no more get away with this now than they did in the 1980s.

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Obama Advisor Tyson Wants Second Stimulus

Here comes. Laura Tyson, one of Obama's economic advisors, wants second stimulus package to make sure the economy will recover.

Obama Adviser Says U.S. Should Mull Second Stimulus (7/7/09 Bloomberg)

"The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small,” said Laura Tyson, an outside adviser to President Barack Obama."

"A bit too small", Professor Tyson? $787 billion is about the size of annual GDP of Turkey. The budget deficit in the fiscal 2008 was $459 billion and that was a record. Already, thanks to the (soon-to-be-first) stimulus package and last October's bank bailout package, the budget deficit projected for the fiscal 2009 is already over $1.8 trillion. Professor Tyson wants to increase that by another... trillion, this time, if the first package was "too small"?

This is lunacy. Where does she suppose the money is coming from? (Oh I see, never mind. Surtax for the "rich" (people earning more than $250,000)) Never mind also that the top 1% of income earners already pay 40% of federal income tax, and top 5% pay 60%. Yes, and money grows on trees and vegetable gardens at the White House.

"“The economy is worse than we forecast on which the stimulus program was based,” Tyson, who is a member of Obama’s Economic Recovery Advisory board, told the Nomura Equity Forum. “We probably have already 2.5 million more job losses than anticipated.”"

How should anyone still listen to her or the likes of her? Sorry we badly missed our estimate but trust us with more money and we will get it right, someday, maybe, if we're lucky.

"Even Democrats have bemoaned the pace of the package’s implementation. House Majority Leader Steny Hoyer, a Maryland Democrat, said on “Fox News Sunday” June 5 that congressional Democrats are “disappointed” stimulus funds weren’t distributed faster."

Bemoaning is good, but the problem is not the pace of implementation. It's where it's going. The bulk of "stimulus" money is going to state and local governments to pay for the welfare services and other pet projects that got tacked on to the bill. (See my post.) Or you could say the entire bill is about politicians' pet projects over a decade or two. How would that "stimulate" the economy is a mystery to me, number one; and number two, the economy may not want to be "stimulated".

At least the private sector of the economy is shedding the excess (capital, inventory, manpower). The government is furiously adding the excess and penalizing the private sector for shedding the excess by increasing regulations and de facto taxation. Explicit taxation will come with healthcare "reform" and the "climate" bill.

"Tyson, 62, later told reporters that the U.S. can afford to pay for a second package, even as the fiscal deficit soars. She said the budget shortfall is “likely to be worse” than the equivalent of 12 percent of gross domestic product that the administration forecast for 2009 and the 8 percent to 9 percent it projected for next year.

"Tyson said the U.S. should shift away from its dependence on consumption to grow, and promote expansion through investment and exports. The dollar will need to weaken in the longer term to promote export-led growth, she said. "

Professor Tyson may have been stressed out from a plane ride to Singapore. She's almost incoherent. The U.S. (= taxpayers) can afford to pay for a second package even if she firmly believes the budget deficit will be far worse. The dollar will need to weaken? It is already at 20-year support. How much lower does she want? 40? That's what the chart pattern of U.S. dollar indicates. And how much longer does she think the creditors of the U.S. debt tolerate the weak dollar?

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Learn From The Super Rich Where & What To Invest

How the Woes of the Wealthy Can Guide You to Global Investing Profits
(by Martin Hutchinson 7/2/09 Money Morning)

"The Capgemini/Merrill Lynch World Wealth Report appeared last week and it makes for some grim reading.

"But it also provides global investors with some insights into the best markets to invest in.

"Among the ultra-high-net-worth-investors (ultra-HNWI) - those with investible assets of $30 million or more - the population plunged 24.6% and their wealth by 23.9%. That’s as you might have expected, in a year when global equity values fell close to 50% and real estate was also weak. Nevertheless, there were some regional variations that were significant - and that should help us decide which global markets to play for profit, and which ones to avoid."

"For a start, how bad the year was depended very much on where you lived. German HNWI wealth declined only 2.7% in U.S. dollar terms, and Brazilian HNWI wealth only 8.7%, in spite of a sharp fall in the value of the Brazilian real against the American dollar. At the other extreme, Hong Kong-based HNWIs saw their wealth decline 61.3% and Indian HNWIs 31.6%, in spite of the fact that the Indian economy remained robust.

"These disparate performances reflect the different asset allocations of the various HNWI groups. German and Brazilian HNWIs invest primarily in bonds, while - at the opposite extreme - Hong Kong HNWIs were very heavily invested in stocks, with the total value of the Hong Kong stock market being five times the island’s gross domestic product (GDP) - the highest ratio anywhere the world."

"A second lesson investors can learn from the experiences of the HNWIs is that many of the so-called “alternative” asset classes provide poor diversification. Real estate and commodities did poorly in 2008, while hedge funds and structured investment vehicles did only slightly better than equities - but with a lack of transparency and an excessive fee structure that made those alternative investments truly unattractive. "

Hmmm. So it's Germany and Brazil, and cash and bonds. And it is not to make money but to not lose money badly.

And there is this increasing concern for price inflation caused by monetary inflation. If that happens, cash and bonds won't help much in preserving the wealth, big or small. As the author concludes [emphasis is mine];

"Apart from putting all your money in cash and bonds (which will not help if we get high inflation, about the only one of the deadly financial plagues mercifully absent in 2008), The Global Wealth Report offered no real defenses against sharp wealth downturns in recessions. I would suggest one only: A purchase of long-dated out-of-the-money index “put” options, traded on the Chicago Board Options Exchange. In flat or rising markets, these will lose you money, but they have the huge advantage that in a real bear market - such as that of September to March - they will potentially provide a real lump of cash if sold near the market bottom. And that cash can then be used to buy stocks and other assets while they are at their cheapest."

The stock market still hangs in no-man's land, although a lot of traders are salivating at the apparent "head and shoulders" formation on a major index (S&P 500, see my post in the other blog). They want to go short so badly here, so the market may throw a curve ball yet again.

But the author's time frame - September to March for potential "real bear market" - happens to agree with mine, and it seems to agree with what people who follow Elliott Wave seem to be saying ("P3 is coming"). I like his suggestion, and I wish I had known what I know now back in September last year.

Now that the government may be taxing each individual rich person for carbon emission, even the super-rich will need a extra good hedge.

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Unemployment Number By The Duration

This is not your ordinary recession.

The graph below shows the number of people unemployed by the duration of unemployment. It was created at St. Louis Fed's FRED site. Shaded areas indicate recessions.

The spiking blue line is the number of civilians unemployed for 15 weeks and over. For the first time since 1980s, people out of work for 15 weeks and over zipped past people out of work for less than 15 weeks. And it happened early on in the recession.

In the recession in early 80's, people out of work for 15 weeks and over didn't surpass the other two categories until at the very end of the recession. In early 90's and 2000's, the blue line never went above the other two lines until after the recessions were over.



A sudden, spectacularly huge spike like this reminds me of other data like bank excess reserve, and monetary base. Another indication that this recession is "credit-driven". Debt-driven is probably more apt description, though.

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June Job Loss Sinks US Stock Market

So a "lagging" indicator is spooking the market again. Job loss in June was larger than expected, at 467,000. The unemployment rate was 26-year high, at 9.5%.

467K jobs cut in June; jobless rate at 9.5 percent
(7/2/09 AP via Yahoo Finance)

"Employers cut a larger-than-expected 467,000 jobs in June and the unemployment rate climbed to a 26-year high of 9.5 percent. Workers also saw weekly wages fall, suggesting Americans will have little appetite to spend and the economy's road to recovery will be bumpy.

"The Labor Department report, released Thursday, showed that even as the recession flashes signs of easing, companies likely will want to keep a lid on costs and be wary of hiring until they feel certain the economy is on solid ground.

"June's payroll reductions were deeper than the 363,000 that economists expected and average weekly earnings dropped to the lowest level in nearly a year.

However, the "real" unemployment rate, as many call, which includes people who have stopped looking for job or settled for part-time jobs, is much higher: 16.5%.

"If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 16.5 percent in June, the highest on records dating to 1994."

PLEASE read the post below about "credit-driven" recession by Karl Denninger (or click here). We are looking at the WRONG parameter (unemployment number) to assess the depth and severity of the current "credit-driven" recession.

As of 9:35 AM PST, Dow Jones Industrial Average is down 177 (over -2%) to 8,326. S&P 500 is down 21 (-2.3%) to 901. Nasdaq is down 45 (-2.5%) to 1,799.

On my stock screen, greens are scarce. TLT (20-year+ Treasury bond ETF), POT (Potash, fertilizer company), UUP (long US dollar ETF), MA (Mastercard), AIG.

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