Another Recession????

[fishpoopoo]

From everything I can gauge at this point, and this all could change, we are looking at a 1.5% - 2% ish growth rate for the second half of this year.

What this means is that by these standards, we're not going to be in a recession, but it will feel like one.

-1.5%-2% GDP growth is not enough to reduce unemployment meaningfully. Remember that we need to create 150,000 new jobs every month just to keep up with new labor force participants like high school and college grads. Note that the reported BLS job figures are not "real" job adds, they are estimates subject to a statistical confidence interval (plus or minus a hundred thousand or sojobs). The 117,000 reported job gains could have easily been in reality a net job loss.

-This economy is fragile and vulnerable to shocks. One example of a shock is a sharp drop in stock prices, which can erode consumer confidence and business investing (both consumers and businesses stop spending, thereby driving us into another recession). We have yet to see what the prior week's price action will do to consumer sentiment. The consumer is important ... accounting for 2/3 of our economy.

-Things to keep an eye on in the near term, as we have no control over these: Europe. Some European countries (like Greece) have borrowed too much money and can't pay it back. Why is this a problem for Americans? European banks have made loans to deadbeat countries like Greece. Americans are in turn invested in European banks. A good example of this is US Money Market funds. Because interest rates are so low here, US Money Market funds have to chase higher interest rates overseas, and this includes about $1.7 trillion of money tied up in European bank debt. Imagine your shock if you wake up one day and find out 50% of the money you parked in a money market fund, which you thought was "safe," goes "poof" because Greece goes belly up.

-Things to keep an eye on: oil. Oil prices are down sharply, which is good. Most folks are looking at NYMEX WTI (just under $82/bbl) but in reality our area of the country, heating oil and gasoline prices are tied to Brent Crude (right now $104/bbl). Oil is subject to seasonal swings, economic demand, currency swings, and geopolitical events (Mideast unrest that can affect supply). The good news is that oil has dropped a bit, but how long will it last? When the economy picks up, so does oil demand, and when oil prices go up to a certain level, this chokes off economic growth.

-Why is the economy otherwise so crappy right now? Because collectively we're up to our eyeballs in debt AND we're worried about our jobs. If we're busy paying off credit cards and mortgage bills from the zero percent APR borrow and spending binge of 2001-2006, combined with high fuel and food prices, we have that much less to spend on rubber dog$hit imported from China. We're less inclined to spend if we're uncertain about our future employment prospects. This deleveraging process is going to take years and will be a headwind to economic growth. Remember, you and I spending money on stuff is 2/3 of the economy.

[Saltheart]

The export of American Manufacturing Know how has given competing countries a 30 year boost ahead as our competitors. Forget about the unskilled labor intensive jobs that would have gone overseas. We sent manufacturing equipment, we sent people to train maintainance and mchining support people. We did all this for quick boosts of companies bottom lines . Yes , certain corps made 10% more for a while.

the problem is it was like playing monopoly. We sold all our holdings in manufacturing know how for a hand full of quick cash. No matter how much cash you have , if you have no property , you eventually lose in Monopoly. Its the same now. We gave away the greatest American Asset , "American Know How". We put countries that would have taken 30 years to develop their own know how into a position where they manned our machines with low paid laborers. Without us handing then turnkey manufacturing know how , those people would still be painting eyes on plastc snow men.

[spence]

Originally Posted by Saltheart

The export of American Manufacturing Know how has given competing countries a 30 year boost ahead as our competitors. Forget about the unskilled labor intensive jobs that would have gone overseas. We sent manufacturing equipment, we sent people to train maintainance and mchining support people. We did all this for quick boosts of companies bottom lines . Yes , certain corps made 10% more for a while.

the problem is it was like playing monopoly. We sold all our holdings in manufacturing know how for a hand full of quick cash. No matter how much cash you have , if you have no property , you eventually lose in Monopoly. Its the same now. We gave away the greatest American Asset , "American Know How". We put countries that would have taken 30 years to develop their own know how into a position where they manned our machines with low paid laborers. Without us handing then turnkey manufacturing know how , those people would still be painting eyes on plastc snow men.

This is all very true, and add to it the fact that these other countries don't have the legal protection for intellectual property that the US does.

On one hand this means the US will always be a more desirable place for some industries to innovate...but on the other...

And perhaps our best export...the American Dream.

-spence

[scottw]

Originally Posted by spence

And perhaps our best export...the American Dream.

-spence

you've mentioned "THE AMERICAN DREAM" a couple of times now...base on your rhetoric...this appears to be higher taxes, increased regulation, more dependence on an increasing number of unsustainable government programs, government acting in ways that they determine will "benefit" American citizens, even if the citizens object, "forced modelling"....and on and on...haven't seen much in your musings that I'd relate to "THE AMERICAN DREAM"

[fishpoopoo]

Reader's digest version of article: Bill Gross was right. We are in a "new normal" of slow economic growth, chronically high unemployment, and it sucks and will continue to suck donkey balls.

Pimco?s Gross Proves Summers Wrong as Selloff Shows ?New Normal? Is Real - Bloomberg

Pimco’s Gross Proves Summers Wrong as Selloff Shows ‘New Normal’ Is Real

By Sree Vidya Bhaktavatsalam - Aug 10, 2011

Bill Gross was right after all.

Former White House economic adviser Lawrence Summers and Christina Romer, the former chairman of the U.S. Council of Economic Advisers, were among critics who challenged a view promoted by Gross’s Pacific Investment Management Co. that the U.S. economy may be headed for a long period of below-average growth and high unemployment, a scenario known as “new normal.” Money manager Kenneth Fisher called the concept “idiotic.”

Now Gross and co-chief investment officer Mohamed El-Erian, who coined the term more than two years ago, have been vindicated by the U.S. Federal Reserve, which said yesterday that the economic recovery is “considerably slower” than anticipated, following the biggest stock market loss since December 2008. BlackRock Inc. (BLK) co-founder Laurence D. Fink, who in January said he didn’t believe in the “new normal,” is forecasting growth of 1 percent to 2 percent for much of the decade.

“A lot of the new normal characteristics have played out,” El-Erian, chief executive officer of Newport Beach, California-based Pimco, said in an interview. “Some people confused new normal with fatalism, but the intention was the opposite. There was the hope that policy makers would recognize that there are structural responses they needed to embark on.”

‘Japanese-Like Growth’

The Federal Reserve yesterday pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 to revive the flagging U.S. recovery. Chairman Ben S. Bernanke and his colleagues acted after reports showed the economy was slowing and an unprecedented downgrade by Standard & Poor’s to the U.S. credit rating triggered a stock market rout that wiped out $1 trillion in the first trading session after the cut.

“It’s pretty amazing that the Fed will be exceptionally low until 2013,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “They are telling you that we are in a stage of Japanese-like growth.”

Pimco outlined the “new normal” scenario at its annual Secular Forum in May 2009 that set investment guidelines for the firm for the next three to five years. The forecast predicted that, following the market collapse in 2008, the U.S. economy would grow at a below-average pace for the next several years as growth in the developed markets slows, unemployment stays elevated and the “heavy hand of government” would be evident in the markets.

Quantitative Easing

Unprecedented asset purchases by the Fed helped revive the economy and financial markets. U.S. stocks doubled from their low in March 2009 to their high in April earlier this year.

Bill Miller, the manager famed for beating the Standard & Poor’s 500 Index for a record 15 years through 2005, rejected the idea of a “new normal” in 2009, saying that the odds may not favor a prolonged period of slow growth.

Summers, the former White House economic adviser, said in 2009 he would be “very reluctant to accept the idea” of an extended period of slow growth for the U.S. economy. Romer has said she found the “fatalism” of the idea that unemployment would remain elevated because of structural issues “distressing.”

Summers wasn’t immediately available for comment, according to spokeswoman Victoria Groves. Romer didn’t return a call seeking comment.
‘Three-Plus Percent’

As the economy strengthened, the criticism grew louder. In April, Romer said that the jobless rate “is not the new normal.” BlackRock’s Fink said during a conference call with investors and analysts in January that he never shared Pimco’s view on the post-crisis economy.

“We never believed in the ‘new normal,’ ” Fink said then. “We were always talking about a U.S. economy growing three-plus percent.”

At the fixed-income unit of BlackRock, investment chief Rick Rieder had been less optimistic, telling clients since at least May 2010 that economic growth in the U.S. will be held back by “structural” factors such as problems in the labor market and the debt problems in Europe.

“We think there will be growth in the range of 1 to 2 percent,” Rieder, chief investment officer for fundamental fixed income at BlackRock, said in an interview yesterday. Fink used the same numbers in an interview with Bloomberg Television’s Erik Schatzker in June, adding growth will remain “modest” for the next 10 years.

Rieder oversees more than $600 billion for New York-based BlackRock, which is the world’s largest asset manager with $3.7 trillion. Fink, who co-founded BlackRock in 1988, is chief executive officer of the firm. While he oversees the asset- management firm, investment decisions are left to individual portfolio managers.

‘People Are Pessimistic’

Fisher said that Pimco and others are choosing to ignore the positives in the market, while focusing on unemployment and consumer spending, which are “late lagging indicators.” While he hasn’t changed his view on the “new normal,” it will be hard to make investors change their minds, said Fisher, chief executive officer of Fisher Investments Inc. in Woodside, California, which runs $44 billion in assets.

“People are pessimistic in the aftermath of a bear market, so I expect ‘new normal’ to stay popular,” he said in an interview. “I don’t expect it to go away anytime soon.”

Gross domestic product expanded at a 1.3 percent annual pace in the second quarter, less than forecast by economists, a July 29 government report showed. The economy almost stalled in the prior quarter, growing at a 0.4 percent pace, the weakest three-month period since the recovery began in mid-2009.

Hiring has slowed as employers lost confidence in the recovery. Average monthly payroll gains fell to 72,000 in the three months through July, from 215,000 in the prior three months. The jobless rate fell to 9.1 percent in July from 9.2 percent in June as Americans gave up looking for work.

Missing the Rally

The Fed said yesterday it expects a “somewhat slower pace of recovery over coming quarters,” adding that “downside risks to the economic outlook have increased.” The Fed also said there has been “a deterioration in overall labor-market conditions in recent months” and household spending has “flattened out.”

Gross hasn’t always been right about market calls. Earlier this year, he dumped U.S. Treasuries from his $245 billion Pimco Total Return Fund (PTTRX), only to miss a rally as investors fled to safer assets amid market volatility and the sovereign debt crisis in Europe. His fund has advanced 3.6 percent this year, lagging behind 66 percent of peers, Bloomberg data show.

Earlier this month, Pimco cut its forecast for U.S. economic growth from a range of 2 to 3 percent to a range of 1 percent to 2 percent.

El-Erian said he also “underestimated” how far the Federal Reserve would go to stimulate the markets and the economy by embarking on a second round of asset purchases using a technique called quantitative easing.

“QE2 was a failed attempt to use the balance sheet of the Federal Reserve to set the U.S. economy on a path of growth,” El-Erian said in the interview. “We saw a short-term boost to growth which has now petered out.”

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

[fishbones]

One big positive I've noticed with the economy being this way is that the strip clubs have been able to hire much better looking dancers than in the past. Girls that otherwise wouldn't consider that type of work now are doing it because they can make decent money.

Of course this doesn't fix the problems with the economy, but it is a silver lining, at least for me.

[spence]

Originally Posted by fishpoopoo

Reader's digest version of article: Bill Gross was right. We are in a "new normal" of slow economic growth, chronically high unemployment, and it sucks and will continue to suck donkey balls.

Here's another good read by Bill Gross...long but well worth it.

-spence

• The past several decades have witnessed an erosion of our manufacturing base in exchange for a reliance on wealth creation via financial assets.
• Fiscal balance alone will not likely produce 20 million jobs over the next decade. Government must take a leading role in job creation.
• A growing number of skeptics wonder whether college is worth the time or the cost.

A mind is a precious thing to waste, so why are millions of America’s students wasting theirs by going to college? All of us who have been there know an undergraduate education is primarily a four year vacation interrupted by periodic bouts of cramming or Google plagiarizing, but at least it used to serve a purpose. It weeded out underachievers and proved at a minimum that you could pass an SAT test. For those who made it to the good schools, it proved that your parents had enough money to either bribe administrators or hire SAT tutors to increase your score by 500 points. And a degree represented that the graduate could “party hearty” for long stretches of time and establish social networking skills that would prove invaluable later on at office cocktail parties or interactively via Facebook. College was great as long as the jobs were there.

Now, however, a growing number of skeptics wonder whether it’s worth the time or the cost. Peter Thiel, an early investor in Facebook and head of Clarium Capital, a long-standing hedge fund, has actually established a foundation to give 20 $100,000 grants to teenagers who would drop out of school and become not just tech entrepreneurs but world-changing visionaries. College, in his and the minds of many others, is stultifying and outdated – overpriced and mismanaged – with very little value created despite the bump in earnings power that universities use as their raison d’être in our modern world of money.

Fact: College tuition has increased at a rate 6% higher than the general rate of inflation for the past 25 years, making it four times as expensive relative to other goods and services as it was in 1985. Subjective explanation: University administrators have a talent for increasing top line revenues via tuition, but lack the spine necessary to upgrade academic productivity. Professorial tenure and outdated curricula focusing on liberal arts instead of a more practical global agenda focusing on math and science are primary culprits.

Fact: The average college graduate now leaves school with $24,000 of debt and total student loans now exceed this nation’s credit card debt at $1.0 trillion and counting (7% of our national debt). Subjective explanation: Universities are run for the benefit of the adult establishment, both politically and financially, not students. To radically change the system and to question the sanctity of a college education would be to jeopardize trillions of misdirected investment dollars and financial obligations.

Conclusion to ponder: American citizens and its universities have experienced an ivy-laden ivory tower for the past half century. Students, however, can no longer assume that a four year degree will be the golden ticket to a good job in a global economy that cares little for their social networking skills and more about what their labor is worth on the global marketplace.

Fareed Zakaria, as usual, has a well-thought-out solution. “We need,” he writes, “a program as ambitious as the GI Bill,” but one that focuses on retraining existing unemployed workers and redirecting our future students. Instead of liberal arts, he suggests focusing on technical education, technical institutes and polytechnics as well as apprenticeship programs. Our penchant for focusing on high tech value-added jobs should be modified and redirected, he claims, to mimic the German path, which allows people with good technical skills but limited college education to earn a decent living.

One thing college does do is to keep 25 million students off the unemployment rolls, much like it did for me when I went on my own four year vacation. The world was a different oyster in 1966, however, and it behooves America to recognize the reversal and the necessity for significant changes if it is to compete in the global marketplace of the 21st century.

It is becoming obvious that the 2012 election will be fought on a battlefield of job creation. A 9.1% official unemployment rate, and a number nearly double that when discouraged and part-time workers are included in the rolls, portend an angry and disillusioned electorate, which will include millions of jobless college graduates ill-trained to compete in the global marketplace. Over the past 10 years under both Democratic and Republican administrations, only 1.8 million jobs have been created while the available labor force has grown by over 15 million. It is clear, however, that neither party has an awareness of the why or the wherefores of how to put America back to work again. Few economic advisors from either party ever mention structural long-term disconnects in employment – a recognition that cyclical influences will no longer dominate the U.S. labor market. Manufacturing and goods exports have ceded enormous ground to China and other developing labor markets, as America’s reliance on services and high tech innovation has exposed gaping holes in an historically successful model. Almost any industry dominated or significantly connected to finance and financial leverage has hit the canvas and stayed down in the aftermath of Lehman 2008. Housing construction, real estate brokerage, banking and consumer retail employment will likely never come back to levels dominated by our prior decade’s excessive leverage and its abuse leading to overconsumption. Because of that focus, a “shovel-ready,” vigorous manufacturing sector is not there to pick up the slack.

Similarly, the high tech paragons of the 21st century – Apple, Microsoft, Google, Facebook et al. – never were employers of high school or B.A. college graduates in significant numbers. Production of hardware, to the extent that any was needed, quickly gravitated to foreign ports of call where workers were willing to produce an excellent product for 1/10th of the U.S. wage. The past several decades have witnessed an erosion of our manufacturing base in exchange for a reliance on wealth creation via financial assets. Now, as that road approaches a dead-end cul-de-sac via interest rates that can go no lower, we are left untrained, underinvested and overindebted relative to our global competitors. The precipitating cause of our structural employment break is both internal neglect and external competition. Blame us. Blame them. There’s plenty of blame to go around.

Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea. While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare. Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama’s long-term budget makes just such a claim and Republican alternatives go many steps further. Former Governor Pawlenty of Minnesota might be the Republicans’ extreme example, but his claim of 5% real growth based on tax cuts and entitlement reductions comes out of left field or perhaps the field of dreams. The United States has not had a sustained period of 5% real growth for nearly 60 years.

Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, “they will come.” It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth. It’s difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate. Admittedly, those are long-term requirements for a stable and healthy economy, but fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth. Fed Chairman Bernanke has said as much, suggesting the urgency of a congressional medium-term plan to reduce the deficit but that immediate cuts are self-defeating if they were to undercut the still-fragile economy.

Academics also point to a theory known as Ricardian equivalence, a notion named after David Ricardo from the early 19th century. His ivory tower theorem was that consumers would become more and more confident of their financial future if in fact they believed that their own government’s exuberance would be held in check. Balance the U.S. or any government budget, he prophesized, and the private sector would extend and lever theirs. Well, commonsensically and anecdotally, I know of no family who, after watching the Republican candidates’ debate in New Hampshire, went out the next day and bought themselves a flat screen under the assumption that their Medicare entitlements would be cut in future years and the U.S. budget balanced. Ricardo and his “equivalence” belong in the trash bin of theses and research aimed more towards academics than a practical remedy to America’s job crisis.

What then, shall we do? My preferred solution has long- term elements, which includes the opening language in this Investment Outlook, concerning the value of a college education as currently structured. Peter Thiel may be on to something, but all of our kids just can’t up and quit college à la Bill Gates. Still, if we are to compete globally while maintaining a higher wage base, we must train for “middle” in addition to “high” tech. Philosophy, sociology and liberal arts agendas will no longer suffice. Skill-based education is a must, as is science and math.

Additionally and immediately, however, government must take a leading role in job creation. Conservative or even liberal agendas that cede responsibility for job creation to the private sector over the next few years are simply dazed or perhaps crazed. The private sector is the source of long-term job creation but in the short term, no rational observer can believe that global or even small businesses will invest here when the labor over there is so much cheaper. That is why trillions of dollars of corporate cash rest impotently on balance sheets awaiting global – non-U.S. – investment opportunities. Our labor force is too expensive and poorly educated for today’s marketplace.

In the near term, then, we should not rely solely on job or corporate-directed payroll tax credits because corporations may not take enough of that bait, and they’re sitting pretty as it is. Government must step up to the plate, as it should have in early 2009. An infrastructure bank to fund badly needed reconstruction projects is a commonly accepted idea, despite the limitations of the original “shovel-ready” stimulus program in 2009. Disparate experts such as GE’s Jeff Immelt, Fareed Zakaria, Jeffrey Sachs and Paul Krugman believe an infrastructure bank to be an excellent use of deficit funds: a true investment in our future. While the current administration admits that the $25 billion in Recovery Act spending on infrastructure only created 150,000 jobs, it also stabilized and improved this nation’s productivity for years to come. Clean/green energy investments also come to mind, most of which require government funding and a government thrust in order to create millions of jobs. China knows this and is off and running. The U.S. needs to learn from their state-oriented model. In times of extremis, pushing on the private sector string is ineffective, especially within the context of a global marketplace that offers alternative investment locations. Government must temporarily assume a bigger, not a smaller, role in this economy, if only because other countries are dominating job creation with kick-start policies that eventually dominate global markets.

And how about at least an intelligent discussion on “trade policy” which incorporates more than just a symbolic bashing of Chinese currency relative to the dollar. Who, from either side of the aisle is willing to discuss the use of trade measures in order to help balance our $500 billion trade deficit? This is delicate territory, reawakening fears of Smoot-Hawley in the 1930s, but we are in delicate territory regarding our unemployment rate as well. Warren Buffett in 2003 advocated an idea he called “Import Credits” which he claimed would increase exports in the hundreds of billions and jobs in the hundreds of thousands. Republicans? Democrats? Discussion please.

In the end, I hearken back to revered economist Hyman Minsky – a modern-day economic godfather who predicted the subprime crisis. “Big Government,” he wrote, should become the “employer of last resort” in a crisis, offering a job to anyone who wants one – for health care, street cleaning, or slum renovation. FDR had a program for it – the CCC, Civilian Conservation Corps, and Barack Obama can do the same. Economist David Rosenberg of Gluskin Sheff sums up my feelings rather well. “I’d have a shovel in the hands of the long-term unemployed from 8am to noon, and from 1pm to 5pm I’d have them studying algebra, physics, and geometry.” Deficits are important, but their immediate reduction can wait for a stronger economy and lower unemployment. Jobs are today’s and tomorrow’s immediate problem.

Those who advocate that job creation rests on corporate tax reform (lower taxes) or a return to deregulation of the private economy always fail to address dominant structural headwinds which cannot be dismissed: 1) Labor is much more attractively priced over there than here, and 2) U.S. employment based on asset price appreciation/finance as opposed to manufacturing can no longer be sustained. The “golden” days are over, and it’s time our school and jobs “daze” comes to an end to be replaced by programs that do more than mimic failed establishment policies favoring Wall as opposed to Main Street.

William H. Gross
Managing Director

[WESTPORTMAFIA]

People don't want to work around here. They are too lazy and it's too easy to live off of our system. I have job openings and will train and hire anyone just in case anyone wants to try to bust my balls. People will work for a day or a week. That's even if they show up. Some even say it's not for me and then go about their jobless business. I would send my stuff overseas in a second if it were possible. I'm losing money because I can't hire jobless people that are doing just fine on the plan they are on now.
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