Bail This Out

Jesus! We might actually make money on TARP?

Buy High; Sell Low

Bloomberg (12.29.07), via Eschaton:

"Drake Management LLC suspended most redemptions from its largest hedge fund after losing 23.7 percent through November, according to a letter sent to investors of the New York-based firm.

Drake will meet about 25 percent of requested withdrawals from its $3 billion Global Opportunities Fund, which tries to profit from macroeconomic trends by trading bonds, stocks, currencies and commodities."

Drake Management Curtails Withdrawals From Largest Hedge Fund

On the other hand, if you buy in at an all-time high, don't start whining if the price subsequently drops. Financial Times (12.13.07):

"Last year the fund, a global macro specialist that focuses on bond and currency investments, returned 41 per cent."

One investor said: 'Unfortunately most people put their money in after the ’06 gains so now they are looking to redeem.'"

Drake’s flagship fund runs off course

UPDATE: Drake has a couple of mutual funds. If you wanted to buy into either of these, you'd have to pony up a minimum of $5 million. Point being is that folks investing in this Global Opportunities Fund might be stupid, but they're probably not poor.

Impressive?

You'd think so. AP (10.31.07):

"The economy picked up speed in the summer, growing at a brisk 3.9 percent pace, the fastest in 1 1/2 years and an impressive performance even as a credit crunch plunged the housing market deeper into turmoil."

Economy Logs Brisk 3.9 Percent Growth

On the other hand. MarketWatch (10.31.07), via The Big Picture:

"Because of the way the government counts and reports the numbers, real-life inflation was understated and growth was overstated. The economy didn't really grow 3.9%, and inflation really wasn't 0.8%. The numbers aren't as good as they look."

Inflation was low because oil prices surged

"(A)ll this counting is done in current dollars, the kind you and I have in our pockets, the kind that lose value every day to inflation. In order to gauge how much of the increase in spending and investment during a quarter was due to real growth and how much to inflation, the government deflates the total number of dollars by its estimate for how much prices rose."

"In the third quarter, the government estimated that current dollar spending and investment increased at a 4.7% annual rate. After subtracting 0.8% for inflation [ed. - aka the "Price Deflator"], the real growth rate was 3.9% in the third quarter.

Barry provides some context:

"To highlight the impact that this 0.8% [deflator] had on the reported REAL GDP: [it] matches a level last seen in 1998; prior to that, the previous deflator gain of .8% was in 1963.

Peter Boockvar of Miller Tabak observes that 'with the dramatic upturn in energy prices and other commodities, the decline in the Price Deflator is obviously unsustainable.'"

I Call "Shenanigans" on GDP!

"'The consensus today for Nominal GDP was 5.1% and came in today at 4.7%, thus weaker than expected. Q3 GDP was fine, but not as good as the headline report reads.'"

Ain't out of the woods yet folks. Not by a long shot.

Is It Tax And Spend Or Spend And Tax?

We can never keep it straight. McClatchy (10.24.07):

"George W. Bush, despite all his recent bravado about being an apostle of small government and budget-slashing, is the biggest spending president since Lyndon B. Johnson. In fact, he's arguably an even bigger spender than LBJ."

Bush is the biggest spender since LBJ

"'He’s a big government guy,' said Stephen Slivinski, the director of budget studies at Cato Institute, a libertarian research group."

"The numbers are clear, credible and conclusive, added David Keating, the executive director of the Club for Growth, a budget-watchdog group."

The spending has been for more than Iraq, Afghanistan and homeland security. It includes education spending (as in No Child Left Behind), the 2002 farm bill, the 2003 Medicare prescription drug benefit ("the biggest single expansion in the program’s history — whose 10-year costs are estimated at more than $700 billion"), and the 2005 highway bill.

See if you can make any sense out of this: "The White House counters by noting that Bush took office as the country was heading into a recession, then reeled from the Sept. 11, 2001, terrorist attacks. 'This president had to overcome some things that required additional spending,' said Sean Kevelighan, a White House budget office spokesman."

We can't.

But it's not all George's fault. Some blame the spending spree on "a ravenous Congress that was eager to show constituents how generous it could be." Which may be true, but as the article appropriately notes, "Republicans ran that Congress until January [2007, and second,] Bush never vetoed a single GOP spending bill."

Get Out The Rain Gear

Couple of life jackets wouldn't hurt, either. TheStreet.com (09.10.07), via Bonddad:

"WaMu dropped 3% after CEO Kerry Killinger said at a Lehman Brothers conference in New York that the housing industry is headed for a 'near perfect storm.'

He said the lender, which has already boosted its provision for loan losses this year, may have to sock away an added $500 million as housing markets continue to weaken."

WaMu Chief Warns of 'Perfect Storm'

Why is this a big deal? Bonddad explains (09.10.07) (link and bold in original):

"First, it's important to remember that Wamu is by far the biggest publicly traded S&L. It has a market capitalization of 30 billion. The next largest company by market cap is Sovereign Bancorp with a market cap of $8.4 billion. In other words, Washington Mutual is the big kid on the block by a fairly wide margin.

Secondly, CEOs are well aware of their status. They know their words can move markets. As such, they are very good at being perma-bulls. No matter what the news, they usually try and spin it in a positive way. That's one of the reasons this statement is news. The CEO of the largest S&L in the US is saying housing is in really bad shape."

"Housing Heading for a Near Perfect Storm"

Note his graph depicting the monthly ARM resets for the next two years. Lots of fun to come, eh?

Uh Oh

AP (09.07.07):

"Employers sliced payrolls by 4,000 in August, the first drop in four years, a stark sign that a painful credit crunch that has unnerved Wall Street is putting a strain on the national economy."

Employers Cut Jobs in August

The unemployment rate "held steady at 4.6 percent, mainly because hundreds of thousands of people left the work force for any number of reasons."

The losses were "in construction, manufacturing, transportation and government...."

Consensus had been for an increase of 100,000 to 110,000. Kinda missed it, eh?

Bloomberg (09.07.07):

"Economists surveyed by Bloomberg News had forecast that payrolls rose 100,000 during the month, according to the median of 88 estimates, compared with an originally reported 92,000 gain in July.

None of the analysts foresaw a decline, as predictions ranged from 35,000 to 140,000.

Bloomberg.com: U.S.

The numbers for June and July were also revised downward by 81,000.

This Is Excellent

There's unemployment, then there's unemployment. All of which is explained (with charts!!) at The Big Picture (09.06.07), via Bonddad:

A Closer Look at Unemployment

It's The Internet's Fault

"The White House said the fact that average incomes were smaller five years after the Internet bubble burst 'should not surprise anyone.'" NYTimes (08.21.07):

"Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion, new government data shows.

While incomes have been on the rise since 2002, the average income in 2005 was $55,238, still nearly 1 percent less than the $55,714 in 2000, after adjusting for inflation, analysis of new tax statistics show."

2005 Incomes, on Average, Still Below 2000 Peak

Not everyone's income declined, however. The overall average would have been worse had it not been for the rich guys. "The growth in total incomes was concentrated among those making more than $1 million. The number of such taxpayers grew by more than 26 percent, to 303,817 in 2005, from 239,685 in 2000."

"These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000."

Thank god for the tax cuts. "People with incomes of more than a million dollars also received 62 percent of the savings from the reduced tax rates on long-term capital gains and dividends that President Bush signed into law in 2003, according to a separate analysis by [the commie, pinko, socialist] Citizens for Tax Justice, a group that points out policies that it says favor the rich."

"The group’s calculations showed that 28 percent of the investment tax cut savings went to just 11,433 of the 134 million taxpayers, those who made $10 million or more, saving them almost $1.9 million each. Over all, this small number of wealthy Americans saved $21.7 billion in taxes on their investment income as a result of the tax-cut law."

Nice, eh? Plus there was something in it for everybody! "The nearly 90 percent of Americans who make less than $100,000 a year saved on average $318 each on their investments. They collected 5.3 percent of the total savings from reduced tax rates on investment income."

"[White House spokesman Tony Fratto] said the fact that nearly all of the growth in incomes was among those in the upper reaches of the income ladder and that the majority of investment tax breaks went to those making more than $1 million 'is not a very interesting story.'"

So quit yer damned bitching, will ya?

Uh Oh

You don't want any undesirable phenomenon in the global financial order, do you? The Telegraph (08.08.07), via Huffington:

"The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress."

China threatens 'nuclear option' of dollar sales

"Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels."

"It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds."

"Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a 'bargaining chip' in talks with the US."

Bargaining chip? Now there's an understatement.

"'Of course, China doesn't want any undesirable phenomenon in the global financial order,' he added."

Of course.

Tax Cuts For Fun And Profit

Fun and profitable for your corporation maybe. From them commies at the CBPP (07.11.07), via Carpetbagger:

"With the fourth anniversary of the 2003 capital gains and dividend tax cuts just past and the Office of Management and Budget’s Mid-Session Review released today, supporters of making these tax cuts permanent are reiterating their claim that the tax cuts boosted the economy and increased federal revenues.

For example, a release from the Senate Republican Policy Committee contends that the tax cuts 'contributed to today’s strong pro-growth economy' and 'have also led to a surge in tax receipts' and that allowing these tax cuts to expire as scheduled would 'have devastating consequences for the economy.'"

The Effects of the Capital Gains and Dividend Tax Cuts On the Economy and Revenues

"Claims like these raise three basic questions. First, has the economic and revenue growth of the past few years really been unusually strong? Second, are there good reasons to think that the capital gains and dividend tax cuts caused whatever economic and revenue growth has occurred, as opposed to just coinciding with it? Third, would extending these tax cuts boost economic and revenue growth on a longer-term basis?"

"The last four years of data, as well as some important new academic research, suggest that the answer to each of these questions is No."

Charts and graphs and citations. It's all there to back 'em up.

Stinko

Bush boom booms on. Bloomberg (05.31.07):

"The U.S. economy grew last quarter at a 0.6 percent annual rate, the weakest in more than four years, as housing slumped, the trade deficit widened and businesses reduced inventories."

U.S. Economy Expanded at a 0.6% Annual Rate in First Quarter

Wonder what Ed's saying today?

Ponies And Unicorns

Cheerleading at its finest. Reuters (05.16.07):

"The U.S. economy could still meet the Bush administration's forecast for 2.7 percent growth this year despite a weak performance in the first quarter, White House economic adviser Edward Lazear said on Wednesday.

Weaker exports and a steady slide in spending on homebuilding helped slow U.S. growth to an annual rate of just 1.3 percent in the first quarter, its softest pace in four years."

U.S. could still grow 2.7 pct 2007

"'We could still make 2.7 percent,' Lazear, chairman of President George W. Bush's Council of Economic Advisers, told reporters at a briefing in Paris."

"'I mean obviously it's harder when you have a 1.3 percent first quarter and you have to build on that.'"

Obviously. Even 1.3 might be pie in the sky. Folks are already speculating that first quarter's growth was really only around 0.5%.

We'll take the under, and we'll pay 3 to 1. Why? Here's one reason. Reuters (05.16.07):

"The pace of U.S. home construction advanced by 2.5 percent in April to a rate that beat analysts' expectations but building permit activity, which signals future construction plans, sunk to the lowest pace in nearly a decade, a government report on Wednesday showed."

April housing starts up 2.5 pct, permits fall

"Even though housing starts increased in April to the highest pace since December 2006, they were down 16 percent from a year ago and, in a sign the troubled housing market may not be turning the corner as quickly as hoped, building permits were off 28.1 percent from a year ago."

Future's So Bright

Gotta wear sunglasses. Kash at Street Light muses on the accuracy of the economists' predictions. We start with 2.4% first quarter GDP growth, from a couple months ago. Bloomberg (03.08.07):

"The U.S. economy will strengthen during the year, overcoming declines in housing, business investment and stock markets, a survey of economists showed.

The world's largest economy may expand at a 2.4 percent annual rate this quarter, and accelerate to 3 percent by year's end, according to the median estimate of 75 economists surveyed by Bloomberg News from March 1 to March 7."

Growth in U.S. to Firm Through 2007, Economists Say

It came in at 1.3%. They then came up with this. WSJ (05.10.07), via Street Light:

"The worst of the economic slowdown has passed, private economists said in the latest WSJ.com forecasting survey. But they don't see any reason to expect a significant acceleration.

By a more than 5-to-1 margin, the economists said they believe the first quarter's 1.3% growth -- the weakest in four years -- marked the low point in the slowdown that gripped the economy much of last year."

Economy Is Clawing Back, but Not Much

Fast forward one day. The low point's been lowered, it would appear. Bloomberg (05.11.07):

"U.S. economic growth last quarter, already reported as the slowest in four years, will probably be revised even lower after figures this week showed a wider trade gap and a drop in inventories."

U.S. First-Quarter Growth Estimates Drop on Trade, Inventory

"Economists now forecast first-quarter growth, reported last month at a 1.3 percent annual rate, may actually have been as low as 0.5 percent."

So, uhhh, they're not like making this shit up, are they?

In the meantime, in between time, ain't we got fun? Bloomberg (05.12.07):

"U.S. stocks climbed for a sixth week, the longest stretch of gains since 2004, after easing inflation and takeovers overshadowed signs of an economic slowdown."

U.S. Stocks Gain for Sixth Week on Takeovers, Easing Inflation

Housing, Housing, Housing

Bloomberg (04.27.07):

"The U.S. economy grew last quarter at the slowest pace in four years because of the housing slump and a bigger trade deficit, leaving consumer spending to keep the expansion alive."

U.S. Economy: Growth Slows to Least in Four Years

"Last quarter's growth rate was the weakest since the first three months of 2003. Growth in the 12 months ended in March slowed to 2.1 percent, the weakest year-over-year gain since the second quarter of 2003."

Hey what's the deal? Weren't those tax cuts gonna save us? Oh wait a minute; we were saved!

Now, about that trip to Europe. AP (04.27.07):

"The euro reached an all-time high against the dollar Friday when weak U.S. growth figures reinforced worries about a widening economic disparity between Europe and the United States.

The surge will not be kind to Americans visiting Europe this summer, who will feel the effect in higher prices for hotels in Rome, entrance fees at the Louvre and cherry beer in Belgium."

Euro Rises to Record High Versus Dollar

Cherry beer? Yechh!

Tax Cutting Your Way To Profitability

Commerce Secretary Carlos M. Gutierrez, last Summer: "President Bush’s economic policies have steered America on a path toward even greater prosperity and opportunity." At least for some of America. EPI (04.04.07), via MaxSpeak:

"Recent data regarding fourth quarter (2006) growth in U.S. gross domestic product (GDP) allows us to examine how the current recovery, now entering its fifth year, stacks up against the other recoveries since World War II that lasted as long. This assessment can shed light on the effectiveness of macroeconomic policies enacted in the name of improving economic growth."

Current recovery great for profits, poor by most other measures

"This much is clear: the current recovery substantially lags the historical average in GDP growth, employment growth, investment in equipment and software, and, with the deflating housing market, even in residential investment."

"Conversely, corporate profit growth in the current recovery (despite a 3% dip in the last quarter of 2006) has been almost twice as rapid as in the past."

"In short, the current recovery looks weak on all measures except profit growth. As a policy lesson, the large tax cuts of 2001 and 2003, which have had ample time to affect the economy by now, have failed to deliver economic performance that even matches up to the past average."

A picture's worth a thousand words, they say.