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« The man who knew too much | Main | Meals on wheels »

Mar 05, 2013


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But can't you just imagine where the Dow would be and the level of corporate profits if we did not have a socialist President?


Ed, the Dow is proving just how resilient the market is, despite the damage wrought by Mr. Obama (anemic improvement in unemployment rate, pathetic economic growth). I guess Mr. Obama sort of overshot how bad seqestration was going to be)


What wonderful news! Tomorrow we will hear how our corporate masters -- who we all love and live for -- have already begun to convert their windfall into more jobs for more people, just like they've done in Spain and Greece.


I'll bet you're one of them, too. So now even the stock market isn't fair either.

What is really hurting everyone else is the increase in the payroll tax and persistent unemployment in the era of hope and change.

If only the rich had less than everyone else would have more of the finite pie.


Although Blinder generally agrees with Krugman, he notes :

The government can cover no more than a small fraction of the projected deficits by raising taxes. Sorry, Democrats, but the Republicans are right on this one. Americans are used to federal taxes running about 18.5 percent of GDP; they will not allow them to rise to 32 percent of GDP. Never mind that a number of European countries do so; we won’t.”


Financial markets are now a function of the amount of money central banks print or don't.

Fundamentals are yesterday.

R's and D's are the same people, just like different divisions of NFL football.

Different teams, same business.

Like preachers.

We are down to games in Rome and currency debasement to pacify the masses as long as possible until it's obvious to too many to be able to placate.


Colbert called this one years ago:

"It's gun in the mouth time for you, isn't it?"



"Regular Gas Price: Then $2.75; Now $3.73

GDP Growth: Then +2.5%; Now +1.6%

Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million

Americans On Food Stamps: Then 26.9 million; Now 47.69 million

Size of Fed's Balance Sheet: Then $0.89 trillion; Now $3.01 trillion

US Debt as a Percentage of GDP: Then ~38%; Now 74.2%

US Deficit (LTM): Then $97 billion; Now $975.6 billion

Total US Debt Oustanding: Then $9.008 trillion; Now $16.43 trillion

US Household Debt: Then $13.5 trillion; Now 12.87 trillion

Labor Force Particpation Rate: Then 65.8%; Now 63.6%

Consumer Confidence: Then 99.5; Now 69.6

S&P Rating of the US: Then AAA; Now AA+

VIX: Then 17.5%; Now 14%

10 Year Treasury Yield: Then 4.64%; Now 1.89%

USDJPY: Then 117; Now 93

EURUSD: Then 1.4145; Now 1.3050

Gold: Then $748; Now $1583

NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares"

tk solomon

the strong socialist uberpee of Obama transcends borders as he also raised the DAX and CAC to past bubblical levels on lower volume and longer welfare rosters.

Andrew Brod

Hartzman on causality...

Rooster: Then quiet; Now crowing.

Sun: Then down; Now up.

Andrew Brod

Also, a lot of the numbers in Hartzman's core dump are from Heritage. Are there no numbers Heritage can't get wrong or misrepresent?

Let's just take one example, the deficit. It's definitely shot up, no question about it. Deep and extended recessions will do that. For FY2012 the deficit was once again a tad over $1 trillion. But it's convenient, isn't it?, to compare that to 2007, which was well over a year before Obama took office. (Never mind that the number for 2007 is wrong anyway.) If this is about Obama, as Hartzman's source essentially makes it out to be, then it's only fair to look at the last 12 months before Obama's inauguration. What was the deficit during that period?

$762 billion.

But that undermines the narrative, doesn't it?


Didn't know the numbers came from Heritage, got it from Zero Hedge.

This is about Federal Reserve money printing Andrew.

This is about mispriced financial markets.

This is about what GWB and Obama did and are doing.g
"The Fed has artificially sustained markets."

- Dick Fisher, President of the Dallas Federal Reserve bank, February 21, 2013

Ed Cone

"Didn't know the numbers came from Heritage, got it from Zero Hedge."

And credited neither.


Some other uncredited from twitter;

"In March, the Fed will purchase $85bn in securities from TBTF primary dealers. The $85bn ididn’t exist on the world’s ledger in February."

"if you print enough money, everything is subsidized - bonds, stocks, real estate." The Fed has cancelled all market signals

"The market is "hooked on the drug" of easy money, Dallas Fed President Richard Fisher told Reuters.

"QE will continue to distort investment away from productive allocation and toward spec in assets priced [for] dismal long-term returns.

"Profoundly negative outcomes have exerted themselves even in the face of ongoing or subsequent easing by the Federal Reserve." - Hussman

"common knowledge “everything will be fine until the Fed reverses course,” when everybody will presumably be able to sell to nobody."


"The Fed has artificially sustained markets." - Dick Fisher, President of the Dallas Federal Reserve bank, February 21, 2013

"The Fed has enabled Congress to deficit spend without limit and without the market signals that would ordinarily constrain such behavior.

"US money base at record 18 cents per dollar of nominal GDP. last time the base reached 17 cents early 1940’s. prices nearly doubled by 1952


If interest rate on gov debt rise to 5%, the interest expense would be about 1/5th of the Budget and more than a third of all tax receipts.


George, everyone knows this is not a problem and it won't become a problem until there is a Republican in the White House to blame.



"GRASSLEY: On the issue of bank prosecution, I'm concerned that we have a mentality of too-big-to-jail in the financial sector of spreading from fraud cases to terrorist financing and money laundering cases -- and I cite HSBC. So I think we're on a slippery slope.

HOLDER: The concern that you have raised is one that I, frankly, share...

But I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large.

...I think it has an inhibiting influence -- impact on our ability to bring resolutions that I think would be more appropriate. And I think that is something that we -- you all need to -- need to consider. So the concern that you raised is actually one that I share."
Illegal securities fraud and insider trading authorized by the SEC and Federal Reserve at least, enabled by the US Justice Department.

Quite the achievement of new market high based on QE steroids, fictional accounting and treason in my view, by the Attorney General of the United States of America.

Mr. Holder has chosen to not enforce the law.


That whole "too big to fail" thing was a big deal during the waning days of the Bush Administration. Not so much these days. I wonder why.

I question if such an explanation from Alberto Gonzales would have passed this forum without notice.

Some people are searching for truth, and some people are trying to score points. My record in documenting this is pretty good.

The problem is what it is and is not relative to who controls the White House or Congress. It would certainly be nice if more people were interested in solutions instead of only recognizing a problem when it can be used for political gain. That is the key difference between high politics and low politics; between thinkers and partisans.

George, you have been beating this drum for awhile and without regard to any consideration but identifying the problem and the inevitable consequence. I suspect most people understand that you are right. It's unfortunate that other petty considerations hinder the momentum necessary to effect change before it's too late.

Many people recognized the real estate collapse many years before it came to pass, but many chose to ignore it. We are still paying for it, and the Fed policy is itself a consequence. When it all comes down, we may be reliving the Weimar Republic. That will be the worst possible scenario with high inflation and low growth; where a gain in defeating one causes a setback in defeating the other. For all the talk against austerity, at some point it won't be a matter of choice. But the can only needs to be kicked down the road until this Administration is over so partisans can declare victory.


We got new highs, but had to flush the constitution;

"The “Geithner doctrine” made the preservation of the largest banks, no matter the consequences, a top priority of the US government. Aside from moral hazard, it has also meant the perversion of the US criminal justice system.

The US faces a two-tiered system of justice...

Instead of seeking deterrence and justice, the US government increasingly appears to have fully absorbed the Geithner doctrine into its charging decisions by seeking a result that has a minimal impact on the target bank but will generate the best-looking press release.

the same captured regulators who had blindly advanced bankers’ self-serving calls for a “light touch” before the crisis and who unsurprisingly embraced the Geithner doctrine afterwards.

for a select group of executives and institutions, crime pays. The lack of meaningful consequences for those committing these frauds encourages future fraudulent conduct.

Neil Barofsky
former special inspector-general of the troubled asset relief programme



"Some people are searching for truth, and some people are trying to score points. My record in documenting this is pretty good." -- Sam

LOL! Indeed.

Ed Cone

George, as you know I've been a consistent critic of Geithner and this administration's clap-if-you-believe approach to the health of financial institutions, as well as its emphasis on the health of banks over other issues, like unemployment. Our government is run by and for the ownership class.

Further, I hope it's obvious that my post is not meant to sound an all-clear on the market, but rather is an update on a recurring story and also a chance to have a little fun with the politicization of this story.

All that said, what are the chances that strategy of back-door bailouts is actually working? That is to say, do you see a possibility that years of free money (as wrong-headed and black-hearted as you may think it, coming as it did at the expense of savers and others) might actually be restoring health to the financial sector?

And, further, while markets certainly are frothed by the free money (including its impact on bonds), do you see any evidence that stocks are doing well based in some part on fundamentals? DJIA PE is not low, but neither is it historically high. Companies are making a lot of money.

Finally, as you build your investment advisory business, what are you telling your clients? Your comments online indicate a bias toward canned goods and ammo. What are your actual strategies?

Andrew Brod

He's long Spam.


"Our government is run by and for the ownership class."


"my post is not meant to sound an all-clear on the market"


"what are the chances that strategy of back-door bailouts is actually working?"

The bailouts worked as far as Obama getting elected to a second term.

The bailouts preserved the wealth of the 1%, and allowed Andrew to believe academic economists can fix economic imbalances by waving a magic fake money wand.

The bailouts prevented the real estate market from reaching a legitimate bottom, taxing buyers to the benefit of the sellers.

The bailouts prevented most from bothering to understand what happened.

The bailouts and accounting provisions to mask losses prevented true price discovery, which has distorted valuations.

Price to Earnings Ratios don't really mean much anymore, if today's is compared to pre-crisis ratios, as they are measured differently. It's like comparing inflation or unemployment numbers from today to the 1900's. They are measured differently, so it's an apples to oranges type of thing.

"do you see a possibility that years of free money might actually be restoring health to the financial sector?"

Historically, free money policies has never restored economic health. I rarely like to say never, but currency debasement has never worked. I eagerly await Andrew's retort.

Andrew Brod

Loose money did a pretty good job of saving the U.S. economy from disaster in 2008 and 2009.

If that matters.


"what are you telling your clients?"

The world is entering a global recession.

The central powers that be want financial markets to rise, and are willing to spend unlimited amounts of pretend currency to achieve the goal.

Up until down. When the down part comes, it's going to get ugly quick. Be prepared. Be liquid. Own some physical assets.

Have some actual cash on hand. The currencies of other countries are and will continue to falter faster than the US, as can be seen in Japan as the more they promise to print, the higher their financial markets go, just like Germany in the early 20's and Zimbabwe and Argentina recently among others. The German central bank ended up owning about 95% of all German debt by the time they printed all the up to 0.

As some emerging markets implode via devaluation, they should adopt the US dollar like Zimbabwe did. There may very well be a shortage of actual dollar bills at some point.

Speaking of ammo, firearms have tracked precious metals higher since 2007. If the federal government imposes background checks that essentially registers guns, most everything out there beforehand that is not registered should increase in value more than what will be registered later.

Ed Cone

"The bailouts preserved the wealth of the 1%"

I wonder if that % should be expanded quite a bit. Over half of Americans have some investment in stocks and while the 100 shares of Initech owned by your local pharmacist would not fuel a rich person's plane for the day it is real money to the pharmacist. Institutions also depend on equities for a lot of the things they do, and of course the companies themselves get value from strong stock prices. So the benefits are not so easily confined to a tiny group.

That's doesn't address the longer term issues you raise, so I hope we can continue to discuss those at greater length.


Germany did this all by themselves at the time.


What we have now is most central banks doing it at the same time.


Quite the similar pictures. As there are more offending central banks, the US dollar may do relatively well.

It will come down to confidence. That's what we witnessed in Italy's election results. Many in Italy seem to have chosen to default, leave the Euro and debase. World wide, when enough feel the same way...

The bond market in Greece was fine, and in two weeks, it wasn't.

If rates rise enough to piss off the old folks who got swapped out of their CD's into junk, it should happen pretty quick as well.

Short duration with certain maturity dates and rates are better than longer with no guarantee of principal or payout.

Plain vanilla is better than packaged and prospectus.


The bailouts preserved the wealth of the 1%

"I wonder if that % should be expanded quite a bit.

...the benefits are not so easily confined to a tiny group."

Agreed with an exception; Those at the top of the middle to the bottom have experienced a significant erosion of spending power due to the easy money that the top didn't feel anywhere near as much from energy and food costs rising. Printing money is essentially a tax on the majority without them knowing it.

A double of energy and food prices hits the bottom far more than the top as a % of income. An amazingly regressive tax was introduced, which most don't understand yet in large part because most our media hasn't seemed financially competent or bold enough to report it, while the government tells us there is little inflation via their semi bogus numbers which exclude food and energy.

Andrew Brod

The government's measure of inflation doesn't exclude food and energy.


"Core CPI

The core CPI index excludes goods with high price volatility, such as food and energy."

Headline inflation includes food and energy, plus hedonics and a bunch of other modifiers which appears to reduce the reported rate to keep SS payment etc... increases low.

The government has many different measures of inflation.

I find Shadowstats to be more credible than the government.

What it comes down to is the cost of living has risen more than the government says it has, the same with unemployment.


Otter (Tim Matheson): [whispering] Germans?
Boon (Peter Riegert): Forget it, he's rolling.

Andrew Brod

He's always rolling.

Yes, core CPI excludes food and energy, but the BLS has all sorts of inflation indexes that include and exclude various commodities. There are indexes that include food only, apparel only, etc. There's one for ham, excluding canned ham. None of these ancillary indexes is intended to be a measure of overall inflation, and are used instead for specific analyses.

Core CPI (as I'm quite sure I've explained previously) is used as a measure of future inflation tendencies. Food and energy prices are set and reset frequently and therefore don't incorporate expectations of future inflation. If one is trying to get a feel for future inflation, core CPI is a reasonable measure to use. If one is trying to get a feel for current inflation, it's the wrong index to use.

That's why no one uses it for that; and why it's unreasonable to criticize federal inflation stats on that basis.




Quite the muted response to the better than expectations jobs report.

If the jobs report was too good, meaning QE should end quicker, elicits this kind of response, how is a great deal of what is occurring not correlated to Fed printing?

Ed Cone

I don't think anyone argues that Fed policy is not playing a role (in fact, some people would say we are seeing indications of the success of those policies).

The remaining question here was about your thesis that it's all the fed and no fundamentals (we've already dismantled your other contention, that this is all about serving the needs of the 1%).

To the extent that fundamentals are involved, might a muted response involve the markets already expecting modest employment gains, and also expecting some offset to those gains as pressure on government spending continues?


I read a good chunk of the government departments padded their budgets like our local municipalities do, via saying they have full time paid positions which are vacant. So the cuts come and they eliminate full time "equivalent" positions, which means they get less money but few may lose actual jobs.

It's a "I'll believe it when I see it" thing.

I believe we are in a catch 22.

Better fundamentals = less Fed printing = higher rates = lower asset prices?

Worse data = more printing = lower rates = higher prices?

The Fed is financing about half of our fiscal deficit, so if the funny money "funding" looks like it may stop, even if the Fed lets its balance sheet roll off, rates should rise.



The drop was partly because more people said they got jobs, but also because 130,000 people dropped out of the labor force.

Something similar happened at the onset of WWII when we sent our unemployed out of the country.

Now we skip the formalities and don't count them.

Meanwhile the number of full-time workers has decreased while the number of part-time workers has increased. Also note that the percentage of the workforce working multiple jobs is up to 5.1%.

Andrew Brod

Yep, today's employment report is a mixed bag, and there's bad news in the data for anyone who wants to find it. Even so, 236K new jobs (and 250K in the private sector) should justify a little happiness.

But yes, there's bad news too. One of the interesting things in today's data is that the drop in the unemployment rate in February was driven by improved job prospects for those who were only recently unemployed. This has been the case for some time now. As a result, the long-term unemployed are still the long-term unemployed. We're witnessing hysteresis in the making.

As always, one should refrain from putting too much emphasis on a single month's data. The number of full-time workers did fall from January to February, but it rose from February 2012 to February 2013. The trend is still looking reasonably good.

But don't worry. Sequestration will make more of the data look bad as we move through 2013.

Account Deleted

Interesting column Andrew. Thanks for defining that term, hysteresis.


If the effects of Keynesanism can be relabeled as "hysteresis" all the better for Keynesians I suppose.

But remember, in the three instances Keynesanism was used most heavily, The Great Depression, Japan's Depression, and our current Keynesian Depression, the return to healthy employment levels were and have been the slowest.

Oh, how I long for a V shaped recession, instead of the slow, protracted, grinding Keynesian rebound we are told is actually just hysteresis.

Ed Cone

We'd all prefer a V-shaped recession, but you don't get those after a financial crisis. This was not the business cycle at work, this was a system failure. Different animals.

Andrew Brod

Very true. Moreover, the last time we recovered from a V-shaped recession, government policy was a good deal more Keynesian than in the current recovery. The last V-shaped recession was in 1981-82, and as a shorthand I'll refer to the corresponding recovery as the Reagan recovery.

1. Government employment is currently about 2% lower than it was at the beginning of the Great Recession. At this point in the Reagan recovery, government employment was 4% higher than at the beginning of that recession. We'd be doing much better if we had that 6% boost in government jobs.

2. Real (i.e. inflation-corrected) government spending has risen at an annual rate of 1.6% since the Great Recession started. At this point in the Reagan recovery, it had grown at an annual rate of 4.1%.

To be fair, real government spending rose faster during the first year of the Great Recession than it did in the first year of the 1981-82 recession. The Great Recession was more severe, after all. But since then the bottom's dropped out; real government spending actually fell in each of the last three years. In contrast, government spending continued to grow strongly during the Reagan recovery.

So all in all, the Reagan recovery was more Keynesian than the Obama recovery; government is currently a drag on the U.S. economy, whereas Reagan oversaw a recovery in which government activity supported private-sector growth.

Perhaps it's a source of some consolation, or at least relief, that government is a smaller drag on the U.S. economy than European governments are on the European economy. We're not the worst players of this game.


"Journalists do very little actual journalism — independent investigation, analysis, reporting. They are told what stories are “important” and, for each story, there is an official Narrative, explaining the key issues and acceptable opinions on these issues.

Mainstream news outlets offer their readers a neatly packaged summary of the politically correct positions on various issues. In exchange for sticking to the Narrative, they get access to official sources. Give up one, you lose the other.
"The CBO’s estimate of the reduction in increased spending between 2012 and 2013 is $43 billion, not $85 billion.

Total federal spending in 2012 was $3.53 trillion.

The President’s budget request for 2013 was $3.59 trillion, an increase of $68 billion (about 2%).

Under sequestration, total federal spending in 2013 will be $3.55 trillion, an increase of only $25 billion (a little less than 1%).

Under sequestration, total federal spending goes up, just by less than it would have gone up without sequestration.

It’s as if you asked your boss for a 10% raise, and got only a 5% raise, then told your friends you got a 5% pay cut.
"Have you read anything in the New York Times, Washington Post, or Wall Street Journal or heard anything on CNN or MSNBC clarifying that the “cuts” are reductions in the rate of increase? "


Andrew Brod

It's unimportant how we spin the cuts: Do they reduce the growth but not the level of federal spending? Or do they reduce the level of spending after we factor in inflation and population growth? (Both could be true.)

What is important is their effect on the economy. The CBO, which Hartzman apparently believes is a trustworthy source, estimates that the sequestration will reduce real GDP growth in 2013 by 0.6 percentage points. As I've noted previously, that's not enough to nudge us into recession, but given that growth forecasts without sequestration are hardly gaudy, the cuts will make us vulnerable to the kind of economic shock that can lead to recession. It's not clear to me why we'd want to risk what little growth we would have had this year, but I guess that's why Congress gets paid the big bucks: to screw things up.

A note about my CBO link: It combines sequestration with the (nearly equally stupid) end of the temporary payroll tax cut but notes that the two provisions will be responsible for approximately equal portions of an approximately 1.25-percentage point drop in this year's growth rate. Adding in other small changes in fiscal policies, CBO estimates that current law will reduce 2013 growth by 1.5 percentage points. Good job!

For reasons that were never clear to me, no one in D.C. put up any kind of a stink about the end of the temporary payroll tax cut, even though its hit on the economy will be as big as that of sequestration.


Health, whether economic or bodily, does not necessarily feel good at the moment. That makes corpulence an easy rationalization.


Andrew Brod

It'd be great if economics were analogous to our personal health. Policy-making would be simpler and even frogs could understand it.

But they ain't... and they can't.

Andrew Brod

Oops: "it ain't."


It's a cartoon.


Oops: It's a cartoon.


Oops: Not an oops.

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