Monday, January 30, 2006

At Least Resume Paper Is Selling in Hooverville

Here are interesting survey results out today about the number of currently employed folks that are looking for a new job. The results speak volumes about the state of the economy. I think the 65% number is implausibly high, but if it is indeed indicative of reality it just substantiates my point all the more. To wit, what kind of "worker" looks for a job, one who is desperately fearful of impending doom and that their financial lives will unravel at any moment or one for whom the prospects of a better deal outweigh the risks of being found out as somehow discontented? Naturally, it is the latter, indicating that "workers" detect opportunities and are far from fearful. Of course, this could be indicative of unwarranted overconfidence or complacency, much like during the dot com bubble. At that time everyone was convinced that there was a bigger-better-deal out there and that their skills made them deserving of it. Clearly it ended badly and it is plausible that today's economy is analogous, but it is definitely not plausible that a majority of Americans think the economy stinks, as Bloomberg and LA Times would have us think. If you think the economy is headed for a disaster you put your head down, you do your damn job, and you don't rock the boat; you don't polish up your resume.

Bloomberg: "We are Just As Arrogant, Clueless as the Big Boys"

Don Luskin has drawn the ire of a Bloomberg staff reporter, who laments that the financial news network is not seen as "the mainstream media." Mr. Donmoyer makes the case quite poignantly, by virtue of his arrogance and cluelessness, that Bloomberg is indeed a member, in spirit at least, of the "MSM."

Of course, I have made the case in this blog, (here and here for just the latest examples) that Bloomberg is MSM-esque in its blatent liberal bias. The evidence is overwhelming but you can pretty much call it thus knowing that Al Hunt runs the show for Bloomberg news. You would think that the leading name in financial news would understand that its client base, while human and certainly possessing of political views, is market-oriented and values cold, clinical reporting that aims to illuminate the prevailing reality in the marketplace regardless of whether it reaffirms their idealogical viewpoint. Market participants can't afford to be blinded by idealogy, it's too expensive. Bloomberg's desire, desperate yearning actually, to be seen as "mainstream" trumps the sensible marketing dictum "know your customer."

Friday, January 27, 2006

Amtrak Plays That 70s Show

Thirty years after it became standard practice in the transportation business, Amtrak has now decided it is going to adopt a yield management pricing system.

Given that it worked out so well for the airlines, maybe sometime in 2040 Amtrak will attempt to emulate the no-frills, low cost approach of Southwest and Jet Blue.

Gap Analysis Needed in the White House

I wonder if this conversation ever took place:

K: "We'll get him confirmed, Sir. Not to worry."

G: "No, I want you to get him confirmed and have Kerry try to phone in a filibuster from Gstaad."

Anyway, now that it's all over but the crying, we can say that the strategic briliance exhibited in getting Alito through the confirmation process glows in sharp contrast to the shocking boneheadedness of the Harriet Miers nomination. I mean, we all have bad days but this is a gap of Grand Canyon-esque proportions. Washington is a weirder place than I thought.

George is a LOSER, George is a LOSER, George is a LOSER

Do you remember delivering an insult when you were a kid? The insult was never very incisive but you compensated by repeating it over and over, typically in a sing-songy cadence. That is what I am reminded of after perusing the TOP function screen on my Bloomberg this morning. You can read all about the results of a (surprise) Bloomberg/LA Times poll that shows that Americans are not supportive of the President's handling of the economy in no less than 3 of the news 18 items. Just in case you missed the point, in another 3 items, you can read about the slide in GDP growth in the fourth quarter. You can take you pick among any of these to hear about what a loser the President is:
- "US Growth Slows to 1.1% Rate in Quarter, Half the Pace Forecast"
- "What Head of Steam? Economy Is Getting Worse Under Bush, American Say"
- "Bush's Support Is Weak as American Public Favors New Direction, Poll Finds"
- "European Stocks Rise to Highest in 4 1/2 Years..."
- "Treasuries Advance After US Economic Growth Slows..."
- "Americans Remain Divided...Poll Shows"

Al Hunt, ala Paul Krugman, is trying desperately to convince people that - despite historically high annual GDP growth, historically low unemployment, historically tame inflation, robust industrial production, etc. - our economy stinks because we don't have free healthcare.

I will have to pass on further take-down of this silly poll (and the silly Americans who think the economy is in bad shape, because I am sure there are a few), 'cause the market is open and gotta make some money, but read this great take-down of the silliness that is reporting on the economy.

Thursday, January 26, 2006

What Happened to the State that gave us the Tax Revolt?

With apologies to my friends and family still back home in my lovely home should have seen this coming like a Mack truck barrelin' down the Turnpike. You get the government that you deserve. Enjoy it.

Muchos Kudos to BB&T

BB&T, a large financial institution (or "bank") serving the middle atlantic and southeastern US has annouced that it won't lend to developers that use eminent domain to seize land for their development projects.

“The idea that a citizen’s property can be taken by the government solely for private use is extremely misguided, in fact it’s just plain wrong,” said BB&T Chairman and Chief Executive Officer John Allison. "One of the most basic rights of every citizen is to keep what they own. As an institution dedicated to helping our clients achieve economic success and financial security, we won’t help any entity or company that would undermine that mission and threaten the hard-earned American dream of property ownership.”

This is great to see. Unfortunately there will always be somebody willing to lend, but this holds promise in that other highly reputable institutions will follow BB&T's lead and the top tier of the market will be increasingly shut off from eminent domain-abusing developers.

OK, Ken Lewis, what's your position?

Rethinking Angie Merkel?

So the conventional wisdom was that Angela Merkel was not quite a Deutsch Maggie Thatcher. Hold off on that conclusion for now, I would say.

Here's Bret Stephens reporting on her keynote speech at Davos:

"Increasing freedom has always led to improvements in Germany," she said, citing the great free-market guru (and architcect of West Germany's postwar economic boom) Ludwig Erhard. She railed against the heavy hand of German bureaucracy on German innovation and entreprenuership. Computers were a German invention yet where, she asked, was the German equivalent to a Microsoft or a Google? She described German unemployment, which has hovered around 10% for more than a decade, as "terrifying." She was equally scathing of the political environment she's inherited. "We are paralysed by events and situations and don't seem to be able to overcome this," said Mrs. Merkel. "Each rule and regulation has a political lobby associated with it," she said, calling Germany's problems "self-inflicted."
On the solution side, Mrs. Merkel was clear in direction, if not in details. "We have to open the windows, breathe deeply the fresh air and see the opportunities rather than the risks and hazards," she said. Germany "must become more flexible, develop better benchmarking, become less rigid in its laws and above all tackle bureaucracy." She called for a "viable" tax system and reduced labor costs. She also urged free trade, lamenting the failure of the WTO talks in Hong Kong (thanks to French obstruction).

Sarbanes-Oxley: Simply Awful, Part X

In December I posted about how Londoners were gloating over the new-found competitive advantage they have over New York in attracting stock listings, thanks to Sarbanes-Oxley. For those of you who don't read pink foreign papers, the news has hit stateside in good ole' white newsprint.

So here is a recap of what Sarbanes-Oxley has meant for us:
  • less competitive US capital markets;
  • smaller companies fleeing our public markets;
  • no actual fraud prevention (e.g. Refco);
  • billions spent on non-productive compliance costs.

This bill is hurting the US economy and should be repealed.

Burrito Bubble

Chipotle Mexican Grill went public today, and, while they make a mean burrito for a multi-store chain, the market capitalization stands at $1.5 billion. The company made $5 million last year. That a P/E of 300 for the folks without calculators handy. I have to do some calculations, but I'll guess that valuation implies something like every man, woman and child in the US will be eating 3.7 burritos per day in the future.

Does Mark Steyn Read Donny Baseball?

Just two posts down I highlighted, on the occasion of the Canadian elections, the world leaders left standing and those fallen several years on after the debate over Iraq.

Mark Steyn expounds, in typical brilliant fashion, on the same theme today.

An astute reader (my only reader?), pointed out that all of the ensuing elections had more issues at stake than just Iraq. Naturally. Indeed. Of course. Canada had a massive government corruption problem (think Abramoff x 1000), Germany has 11% unemployment, etc. and so forth. Nonetheless Iraq war policy, or more importantly the philosophical underpinings of such policy, is highly relevant. Steyn nails it, here's the money quote:

" demonization of the Great Satan is almost as popular in the streets of Toronto as in the streets of Islamabad. But these days anti-Americanism is the first refuge of the scoundrel, and it's usually a reliable indicator that you're not up to the challenges of the modern world or of your own country."

RTWT for the hilariously ironic bit on the Canadian flags. I imagine that large percentages of the Canadian public views most Americans as mindless, flag-waving dolts, yet their own government seems to be trying to blunt separatist sentiment by handing out...flags!

Wednesday, January 25, 2006

Dependence on Foreign Oil

One way to reduce our dependence on foreign oil is to have our foreign oil suppliers prefer to sell to somebody else. Looks like it's happening. Only problem is that not every totalitarian petro-state can sell all their oil to the Chinese, some will still have to sell to us. So who would you rather it be, the Saudis or Hugo Chavez? Exactly. Or maybe we could avoid such a 'lesser of two evils' bind and drill for oil, ya' know, closer to home. Say, in Alaska.

On a related note, Lukoil announced a tidy 600 million barrel gusher in the Caspian today. Note to Peak Oilers, "if you don't look for oil, you will never find oil."

Tuesday, January 24, 2006

Canadian Elections

OK, the Canadian elections are, well, a secondary concern. I mean, Paul Martin was never quite a Jacques Chirac or a Gerhard Schroeder simply by virtue of Canada's meaningless (or should I say, failure to assert its dubious meaningfulness like the French or the Germans), but simply a mini-me of the larger scale "world leaders."

Ca n'a pas d'importance...but her is the tally of world leaders standing today after the planet's democracies have spoken after careful consider of this whole thingy in Iraq.

USA- George W. Bush = pro war +1
UK - Tony Blair = pro war +1
Spain - Jose-Marie Aznar = pro war -1
Australia - John Howard = pro war +1
Germany - Gerhard Shroeder = anti war -1
Canada - Paul Martin = anti war -1
France - Jacques Chirac has not faced the voters, but let's be real, he's a gonner = anti-war -1
Italy - Berlusconi = indeterminate at this point = even

I won't even count Portugal and Poland, lovely places to be sure, that both went with more pro-war governments recently. So the tally of major democracies that had a chance to express their opinions...+6 pro war. Clearly, all these people are simply stupid.

Intellectual Honesty Update

OK, I' getting smoked on my bearish call on the USD. $1.15 for the Euro looks nutty right now, based on recent trading. Today, the currency market bought the European line of rising rates hook line and sinker. Color me skeptical. The currency yahoos trade on the day's news b/c they need to have cash in pocket for the weekend and if the Italian Finance Beaurocrat says that the ECB will raise rates, well, they'll go along. I find it hard to believe that the ful ECB will continue raising rates when the most excited that the likes of Germany can get is projections of GDP growth moving from 0.7% to 1.0%.

But fair is fair, I'm underwater and looking stupid for my $1.15 and $1.10 predictions. But stay tuned. It ain't over.

Wednesday, January 18, 2006

Dealing with Iran: On to the Next Phase

In my estimation we have moved into the next phase of dealing with Iran. During the phase just past, Iran took advantage of the long diplomatic string that the Europeans were destined to play out. Such was preditable. The West has to offer the carrot first. We simply must travel through the carrot phase as a necessary step to reach the stick phase. This is not just our modus operandi, it is grounded in our moral view. (While this seems obvious, we take it for granted that is the way we approach things. Other cultures are not as wedded to exploring conciliatory options. I doubt we will ever see the Chinese travel through the carrot phase in their dealings with Taiwan.) If you were Iran, you would be smart to ride out this phase, conceding nothing, because the reality is that there would be no consequences. And they have.

Now the West has to see how far Iran will bend in the face of consequences. Thus the rhetoric has been slightly escalated. Ehud Olmert has made has debut as the heir to Sharon by saying that Iran simply must not be allowed to acquire nukes. Rummy has now come out and said that the US military isn't stretched and that he's got plenty of dry powder. And we have gotten the Russians and the Chinese, at least for now, punting on standing by their trading pal Iran. So a Security Council referral is closer at hand and the likeliest military players are starting to talk military options. So now the consequences are beginning to be assembled for Iran to weigh and do the national interest calculus. Who knows how long this phase will take, months definitely, a year or more maybe. My guess is that it all hinges on the pace of events in Iraq - how long it takes to train the target number of Iraq security forces, thus freeing up a chunk of US military capacity.

Tuesday, January 17, 2006

Happy Birthday Ben Franklin !!

I have just enough time to get this in under the wire...Happy Birthday Ben.

To commerorate I will offer up BF's absolute best wisdom, and one of my favorite quotes full stop:

"Beer is proof that God loves us and wants us to be happy."

Much agreed old boy!

Never Give Up: Bloomberg Bashes Bush Economy Again

Bloomberg has a TOP story (not found on impugning (again) the Bush economy, titled, "Bush's Expansion Leaves Workers Behind, Creating Conflict with the Fed." Just like the last time they did this, oh two weeks ago, they trot out some heavy guns to bolster the case. The main artillery here is economics legend Robert Solow. First they fire the Solow cannon by stating Solow's contention that an economy that is not distributing gains widely is "poorly performing." They leave that sweeping statement hanging there, with nothing more, as de facto proof of their thesis. The takeaway is no so subtle - Solow says the US economy is performing poorly. It would be too sticky to explain that the US economy probably distributes its gains more widely than any other economy (maybe excepting some one-trick pony petrostate like Norway) through various mechanisms, including high wages, broad-based stock ownership, massive government entitlements, employer-paid healthcare and pension benefits. By Bloomberg's Solow syllogism alone, you would have to infer that the best performing economies are highly collectivist ones, like France and Germany. 10% unemployment and sub-1% GDP growth isn't poor performance? Hmmm (scratching chin).

Then they break from Solow to bring out some lesser ordnance and return back to him after you've paged down 4 pages. Here we learn that Solow thinks that the Fed should seek full employment, which corresponds to a jobless rate of less than 4.9%. Granted this is still a major subject of debate but the general consensus is that full employment is around 5%. So this sounds plausible, but it still says "less than 4.9%," which means we are not there today because employment is right at 4.9%. Again, the implication is clearly negative. And, how can you argue with Nobelist Solow? Well, I think it would quite easy to given that the US has achieved less than 4.9% unemployment merely twice in the last 50 years, both times during dangerously overstimulated economies (LBJ's Great Society/Vietnam excalation from '65-'70 and the '94-'00 Internet bubble era) that came a tumblin' down soon thereafter. Is that what the Fed should really be doing, trying to achieve what happens only rarely and turned out badly when it did? Hmmm (squinting eye).

And, of course, the slightly more reasoned discussion, in that minimalist nod to fairness, is on pages 6 and 7 of 8...that wages are held down by gains in other areas, like benefits and workplace flexibility, etc.

Buy West Young Man (and South Too, Young Lady)

I have hit this theme many times (here, as an example). George Will gives it life describing it as the political/economic center of the country moving south and west at something like 1/2 mile per day.

Jeff Jacoby details the Massachusetts version. Today, the WSJ weighs in on New York's contribution. This phenomenon is hard to see on a daily basis and only in retrospect or at a major indicative milestone can we see the bigger picture (like in 1985 when Houston replaced Philadelphia as the nation's 4th largest city), but that doesn't make it any less real. Although the trend has become so pronounced that it is hard to miss if you are paying attention. If you are a young family living in New York, New York City in particular, it almost comically predictable that you will lose the majority of your friends and associates to other parts of the country over the next few years. New York has always had its peripatetic set, people relocating to London, LA or elsewhere for temporary stints, but the trend now is different. People are giving up on New York as a place to raise families. They are returning to their native cities in the South and West or just moving out cold turkey for a fresh start. (And it is not just young white professionals. My daughter's Dominican nursery school teacher just moved to Greensboro, NC because she just couldn't stomach having her own children in the the disaster that is the NYC schools any longer.) Technology has sped the trend. My old employer, a gargantuan NYC-based financial services company, was only too happy to relocate its employees out of NYC and hook them up with high-speed connections at home in pretty-much-anywhere, USA if they so chose.

State politicians should want to correct this as a matter of duty, but, failing that, they should want to correct it out of base motives. We know that politics works on a spoils system, and as places like New York and Massachusetts lose population and political influence, they will ultimately lose out on the spoils. You can bet that as Texas and Arizona gain congressional seats at NY and MA's expense, the money to modernize the public infrastructure will flow in the same direction.

There appears to be no sign that the trend will reverse (can you say Governor Eliot Spitzer?), so buy your kids a couple of acres of land on the outskirts of cities like, Phoenix, Denver, Boise, Greensboro, San Antonio, or Tulsa. They will thank you.

OK, Boehner, Let's Have a Number

Rep. John Boehner, a candidate for House Majority Leader, states his case in the WSJ today and sounds out an anti-pork message.

It is all well and good, but in the world most of us operate in, such a message without a quantitative goal is mere platitudes. So let's see a goal that contains a number and that can fit on a bumper sticker. Like:

"15% by 2010" meaning a 15% cut in total federal spending by 2010, or

"Smaller by Half a Trillion" meaning, we will seek to cut federal spending to $2 trillion.

Bloomberg: "NYC to be 'Vanilla' Again"

Bloomberg also promised that New York will be a "vanilla" city again. Many of the city's white neighborhoods were heavily damaged by the stock market bubble of the late 1990s.
"It's time for us to come together. It's time for us to rebuild New York, the one that should be a vanilla New York," the mayor said. "This city will be a majority white American city. It's the way God wants it to be. You can't have New York any other way. It wouldn't be New York."

Monday, January 16, 2006

Stossel Flames the Education Monopoly

Cafe Hayek tipped me off about the John Stossel special investigative report on education this past Friday. I predicted a typically incisive and conventional wisdom/orthodoxy-exploding Stossel performance. And I also predicted unprecendented hate mail.

After watching the program, I realize I was off the mark. I should have predicted not hate mail, but death threats. Stossel absolutely skewered the forces behind the education monopoly. And I mean skewered. Randi Weingarten was exposed as the fire-breathing union thug that she is and that Inez Tennenbaum looked about as clueless as could be as she burbled her technocrat boilerplate.

Stossel is a national treasure and he truly stuck one in the eye of the last great crushing monopoly in America today. It is a surprise that the MSM has kept him around.

Friday, January 13, 2006

Keep Your Hybrids

I have seen the (more) fuel-efficient, clean(er)-burning future...and it is lovely.

Cats Sleeping With Dogs Part II

Yesterday I noted the WSJ's blurb that John Shadegg was considering running for House Majority Leader.

He appears to be the anti-Don Young, but I don't know too much about him. So I made a point to tune in to see him on some cable news program last night. I'm paraphrasing but he said essentially this:

"I don't think Republicans understand how much trouble they are in."

Clearly this guy does not meet the cluelessness requirement to be in the Republican leadership.

Cats Sleep with Dogs, Fortunately Only Temporary

While some ridiculous number of people in this country still think that the economy is in terrible shape (a ridiculous number are ridiculous), economic activity turns out to be so robust that tax receipts are pouring into government coffers. In fact the government actually ran a surplus in December. Dr. Ed Yardeni put it well in his daily alert:

"It is quite amazing, and unusual that the private sector is paying taxes faster than the pork handlers and crooks in DC can spend it."

I thought I felt the Earth spinning off its axis last month, actually. Unfortunately, methinks all will be back to normal quite soon though.

Pyrhic Victory for Collectivism

The blogosphere is all over the latest battlefield outcome in the War on Wal-Mart, in which the collectivists have prevailed. Maryland passed their punitive payroll tax bill that wallops, handily enough, Wal-Mart solely.

There are alot of things that can be said about this and I wouldn't want to cover them all (and I have a busy day today), but I have a very stong feeling of what the outcome will be. Wal-Mart will do one of two things:
  1. Reduce their presence in Maryland to where they have less than 10,000 employees. The majority of these job losses will come as store closings, but perhaps they have non-store jobs that can just be moved across the border to Pennsylvania, Delaware or Virginia.
  2. They will indeed raise the healthcare spending per employee to 8% and offset the increment by peeling back other components of compensation, like retirement benefits and cash wages. Workers could wind up with the greatest healthcare but less cash in their pocket and less in their 401Ks.

I think #2 would be the least likely outcome because it is the least tenable. Wal-Mart would lose their best workers and embitter those that remained. Layoffs would be painful to the unfortunate workers whose jobs were legislated away, but those who remained would have their current compensation intact, so option #1 looks more likely.

Looking at a map of Wal-Mart's stores in MD, it looks like they are heavily clustered around Baltimore and only a handful of stores are outliers. A conceivable strategy would be to move the Hampstead and Westminster stores to Pennsylvania, close the Bowie store, consolidate the remaining presence around Baltimore to fewer stores, and move all non-store jobs out of the state. With these moves, it seems likely that they could get their total Maryland employment down below 10,000.

It is sad to see this come to pass, but the Maryland legislature cannot legislate away the laws of supply and demand so they must have foreseen the consequences of their actions. Marylanders don't have a right to Wal-Mart's jobs or Wal-Mart's services, so they will get only so much of these things as the law allows.

Many feel that Wal-Mart will simplytake their lumps and go along with the law. I disagree. Their business model absolutely depends on the current cost structure, and even the slightest break in their cost structure discipline would begin a long term deterioration of their business. They will not allow that. Finally, the very nature of a large retail operation like Wal-Mart means that they are not married to a current set of locations. They have to go where the people are, so they are in the business of opening and closing stores all the time. Pursuing option #1 doesn't entail anything radical on their part, just doing more of the same thing they do all the time.

I hope that the Maryland legislators that voted for this have a good explanation to give the roughly 7,000 workers who will see their jobs go away.

Thursday, January 12, 2006

Euro Update - Trichet Is Hemmed In

I've blogged on the Euro vs. the USD a number of times (here and here for example). Throughout November I was highlighting the tension between sensible monetary policy and what the politicians would like to see happen. Europe has to take economic goodies where it can find them today and the likes of Chirac and Berlusconi would like to see further erosion in the EUR to spur more exports (to be specific, erosion versus the USD, because the US economy is humming and can afford lots of European goodies, from wine to airplane parts) and it was looking good for them in December as the EUR fell to about $1.17. However, Jean-Claude Trichet over at the ECB has to be on the lookout for inflation, thus he raised rates last month. You could almost hear the groans out of the Palace Elysee and other seats of power in Europe as the currency markets caught a whiff of competitive rate hiking with the US and the Euro rebounded.

Well, Trichet came out today and admitted just how constrained he is. The margin for error in monetary policy is razor-thin given Europe's economic situation and he must tread ever so lightly. This further illuminates the difficult situation that the EUR is in, the political forces are arrayed against it and now we have confirmation from the source that monetary policy is shoehorned into an accomodative bias. To me, this would bolster the argument for a structural trend down for the Euro.

Bloomberg has the story.

Here Is One for the "Reread Every Year" File

This, in its elegence and cogency, is worthy of Smith and Hayek.

MISPRONUNCIATION !!! He's An Idiot, an Idiot I Tell You!

I just watched a video clip of Ted Kennedy suggesting to Senate Judiciary Committee Chairman Arlen Specter that the committee subpoena some records for the Alito hearings, and, by Jove, I heard Teddy say " kus toady " in reference to the care, supervision and control of said documents. C'mon, is it not obvious this guy is an IDIOT!!!! I mean everybody knows that word is pronounced "kus' tuh dee". What an abomination for this obvious simpleton of man to ascend to such high reaches of our government! It's a scandal, an embarrassment to the nation I tell you. I'm so mad I could just go "nook u ler".

Barbarian at the Gate? Let Him In !!

The WSJ's "What's News" section has a blurb that Rep. John Shedagg may run for House Majority Leader. While not one of my original ingredients for lemonade, you gotta love a guy who denounces Don Young Brand Pork on his website.

Related post here.

Monday, January 09, 2006

Kudlow Comes Out for Lemonade...Baseball Style

Larry Kudlow has stolen my Lemonade Recipe. Fine by me.

The Less Said the Better...

regarding the Giants. But that famous quote of Howard Dean's comes to mind..."AAAARRRRGGHHHHHHHH!"

Friday, January 06, 2006

Taking An Eye Off the Ball Just a Tad

From Drudge, the Jerusalem Post is reporting that Hugo Chavez has said some anti-Semitic things. This isn't very cool, but on balance, if the worst Chavez ever did was offend some Jews, the world would be a better place. I'll wager that folks, Venezuelans in particular, would be willing to give him a pass if he weren't restricting freedoms, destroying the economy, stealing elections, murdering opponents, formenting socialist revolution across South America, and militarizing.

In a related item, it is rumored that Robert Mugabe has bad table manners.

Does a Dead Body Mean a Serial Killer Is On the Loose?

The other day I blogged on the inverted yield curve and the irrational confusion of correlation and causality associated with the phenomenon. A Bloomberg TOP story, a news story no less, faults the Bush administration for not confusing the two. The story is titled, "Bush, Who Follows Market Signs, Pays Little Heed to Yield Curve." The clear implication is that Bush chooses to focus only on data that support his view, a theme we've heard before. The story expresses amazement that administration officials are touring the land touting the strong economy (after all, today's Labor Dept. release shows unemployment at 4.9%), when the yield curve has inverted ever so briefly. Bloomberg corrals a number of economists and analysts to bolster this amazement, with the prevailing view that the economy simply must hit the skids soon. No sign of any economist, like these guys, who say differently in the first two-thirds of the article.

Then, in their typically minimalist nod to fairness, after you page down four screens, the story does end with the grudging admission that the administration could "probably" be right. They reference Treasury Secretary John Snow who makes the same point that yours truly made in my original blog post, that previous inversions which preceded recessions happened at much higher rate levels. (At least they mention that Snow has a PhD in economics, which is more than most other media outlets admit.)

There is simply not a whole lot of persuasive evidence that supports the prediction of recession. A moderation or a slowdown of the economy is the best that a pessimist can do, and even this argument rests on speculation of retrenchment in consumer spending in the absence of mortgage refinancing.

Sometimes a dead body is just a dead body, not a portent of anything more. You would think that an outfit like Bloomberg could offer up a more incisive and insightful analysis of the yield curve's relationship to the broader economy. Sigh.

Thursday, January 05, 2006

How to Streamline the Oscars Ceremony

Oscar buzz is heating up with release of nominations for the numerous mini-Oscar/just tolerably self-aggrandizing awards that are given out prior to the actual, intolerably self-aggrandizing Oscars themselves. This year's coterie of beloved Hollywood themes will fare quite well:
Syriana - Big Oil is evil...OK, all corporations really; Munich - Hey man, terrorists are people too, and we're just as bad when we fight terrorists; Brokeback Mountain - Homosexuality is a divine state of being, and you're a friggin' homophobe pal!; Capote - a twofer.

So here's the suggestion...just make one movie and nominate it for everything. That way the award show would be over before the evening news. Just make the ultimate Oscar-worthy movie, maybe something about a gay Palestinian terrorist who exposes and fights corrupt, evil white males who engage in commerce and funnel illict profits to George Bush's creeping, nay galloping, fascistic Christian theocracy. The sound track could have Moby, the Dixie Chicks and Kanye West. Working in some animation might prove tricky though, but its doable.

Tuesday, January 03, 2006

This Week - Two Toms

I've been neglectful over the past few weeks about awarding the Dr. Senator Tom Coburn Award to a New York Giant player (after all it's been all-Tiki, all the time). But this week we are back, and taking his place next to the distinguished gentlman from Oklahoma is...Head Coach Tom Coughlin. He deserves some recognition. Last year the received view was that Coughlin was not a very good coach...a mediocre strategist/tactician and just a plain jerk to boot...and that the decision to hire him was stupid. Well, the G-Men managed 11 wins and the NFC East title. Eat some crow.

Congratulations to Tom Coughlin!

"I Got Into College. This Is Terrible!"

When I was a snarky 18-year old, this was one of the jokes that my friends and I found extremely funny. Of course, at 18, we were obsessed with getting into a good college. I never knew why, but throughout the whole process, the suicide rates at particular colleges seemed to come up all the time. A friend might say to a random person, "I've applied to Cornell," which would prompt the response, "You know they have the highest student suicide rate, don't you?" So my friends and I relished the absurdity of the notion that if one attended a 'high-suicide' college, one was bound to feel increased suicidal urges.

This is what I am reminded of at the inverting of the yield curve. The only formulation that media can really come up with when talking about this phenomenon is that the inverted yield curve means recession. Typically, it is "an inverted yield curve presages a recession" or "an inverted yield curve has presaged the last five recessions." More circumspect media treatments might tell you that recessions generally follow the inversion of the yield curve but not always, but even this description is thin on the ground in the mainstream media. If you otherwise didn't know much about the yield curve beyond what you read in the MSM, you could be forgiven for thinking that an inverted yield curve causes recessions. So let me get a basic truth out there as a starting point: the inversion of the yield curve does not cause a recession. The slope of the yield curve is an effect, not a cause. The yield curve reflects supply and demand and you have to look deeper to see what is driving the curve's slope.

Typically the yield curve inverts when the Fed is driving up short term rates to fight inflation and there is something in the supply/demand balance for longer term money that keeps the long end stable or even allows it to fall. If that something were, say, corporate and/or consumer reluctance to invest, and thus borrow, keeping long corporate rates down, then a recession would be the likely result and this is typical of how events have played out in the past. However, while the Fed has been driving up short rates since June of 2004, it is worth noting that the inflation expectations of the marketplace have not been in tune with the Fed. An overwhelming sense of inflation-dovishness has persisted, which has worked to keep the yield curve flat. If inflation fears were severe and widespread, investors would be demanding more yield at the long end of the curve and existing portfolios would be rejiggered to the short end to mitigate reinvestment risk and capital loss, which would be a steepening influence upon the curve. This has not been the case as the pervailing sentiment in 2005 was that the Fed would raise a handful of times and stop. As this view was losing ground slowly throughout the year, hurricanes Katrina and Rita gave it a second life (see here). I think that this is a major, but just one, factor driving the supply/demand of the long end. Greenspan himself has fingered a worldwide glut in savings, partly attributable to fantastic petro profits around the world. Petro states don't reinvest their money locally, because generally the local economies stink (do you think there are great investment opportunities outside of the energy sectors in Venezuela, Russia, Saudi, and Iran?). You can also finger the Chinese and Japanese who desperately need to maintain high exports to us, China to create jobs to keep social unrest at bay and Japan to keep their incipient recovery from miscarrying, but don't necessarily have fine choices on what to do with all those dollars. Corporations have slowed their borrowing but not because they are refusing to invest in future growth, rather because more of the capital expenditure budget is coming from rising profits and free cash thrown off in recent years by refinancing lower. Balance sheets were retooled the last few years and current cash flow is funding investments - the animal spirits are not sickly.

So it is probably alot of things that are conspiring to keep the long end from moving upward, but none of it seems to presage bad things. Foreign investment is flowing into the US and corporate investment remains robust.

Another thing to think about is the level at which today's inversion is taking place. I don't have data handy on what level the past inversions took place, but I suspect they have been at higher levels than today's 4.3%. The effect of rate shifting at 6+% is alot different than at 4%. I think the economy will react differently to rates rising from 1% to 5% than it would if rates were rising from 4% to 8% or worse, so 2005/06 will not prove analogous to past periods of rising rates and inverted yield curves.

We are not destined for recession any more than I or my friends were destined to commit suicide by going to certain colleges.