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The Evidence Of A Coming Recession Is Overwhelming

by Comstock Partners

We first noticed the first signs that the economy was beginning to soften about three months ago.  Now the evidence of a slowdown has become so overwhelming that it is difficult to avoid the conclusion that we are headed for a recession.  We cite the following as evidence.

Retail sales (both total and non-auto) have dropped for three consecutive months.  This has happened only five times since 1967—-four times in 2008, and one now.  Vehicle sales have tapered off with May and June being the two weakest months of the year.  Consumer confidence for both the Conference Board index and the University of Michigan Survey are at their lowest levels of 2012.

On the labor front, June payroll numbers were weak once again and averaged only 75,000 in the second quarter. The latest weekly new claims for unemployment insurance jumped back up to 386,000 and the last two months have been well above the numbers seen earlier in the year.

The ISM manufacturing index for June fell 3.8 points to 49.7, its first sub-50 reading in the economic recovery.  The ISM non-manufacturing index for June dropped to its lowest level since January 2010.  Most recently the Philadelphia Fed Survey for July was negative (below zero) for the third consecutive month.

The small business confidence index declined in June to its lowest level since October and has now dropped in three of the last four months.  Plans for capital spending and new hiring have dropped sharply.

Despite all of the talk about a housing bottom, June existing home sales fell 5.4% to its lowest level since the fall of last year.  In addition mortgage applications for home purchases have been range-bound since October.

Core factory orders, while volatile on a month-to-month basis, have declined 2.6% since year-end, and the ISM numbers cited above indicate the weakness is likely to continue.

The Conference Board Index of leading indicators has declined for two of the last three months and is now up only 1.4% over a year earlier, the lowest since November of 2009, when it was climbing from recessionary numbers.  The ECRI Weekly Leading Index is indicating a recession is either here now or will begin in the next few months.

The breadth and depth of the slowdown are greater than the growth pauses experienced in mid-2010 and mid-2011, and indicate a strong likelihood of recession ahead.  In addition the foreign economies will be a drag as well.  A number of European nations are already in recession and others are on the cusp.  The debt, deficit and balance sheet problems of the EU’s southern tier are a long way from any solution, and will not remain out of the news for long.  China is coming down from a major real estate and credit boom, and is not likely to avoid a hard landing.  The Shanghai Composite is in a major downtrend, declining 28% since April 2011.  The view that China is immune because of their unique economic system reminds us of what people were saying about Japan in 1989.

The stock market is ignoring these fundamentals as it did in early 2000 and late 2007 in the belief that the Fed can pull another rabbit out its hat.  It couldn’t do it in 2000 or 2007 when it had plenty of weapons at its disposal.  Now there is little that the Fed can do, although it will try since it will not get any help, as Senator Schumer so aptly pointed out at Bernanke’s Senate testimony.  In sum, we believe that the stock market is in store for a huge disappointment.

Source

2013 Cliff Dive?

The election will determine whether a nasty dose of austerity can be avoided

https://i0.wp.com/media.economist.com/sites/default/files/imagecache/290-width/images/print-edition/20120505_USD002_0.jpg

May 5th 2012
WASHINGTON, DC

AMERICANS have watched austerity sweep Europe with a certain Schadenfreude. But eight months from now they may get a dose of the same medicine. The political compromises that have produced much of America’s deficit of 8% of GDP are programmed to go into reverse at the end of the year, two months after the election. A stimulus package consisting of a payroll-tax cut, investment tax credit and enhanced unemployment insurance expires then, as do George W. Bush’s tax cuts (which have already been extended by two years from their original end-date of 2010). At the same time an automatic, across-the-board cut in domestic and defense spending, called a “sequester”, takes effect, cutting about $100 billion from government spending next year.

The economic impact of this fiscal cliff is a matter of some debate. The Congressional Budget Office reckons that the combined effects of the sequester and the expiring tax cuts would add up to 3.6% of GDP in fiscal 2013. But David Greenlaw of Morgan Stanley, which puts the total effect at almost $700 billion at an annual rate, argues that the calendar-year impact is much larger, at around 5%. Others think the effect would be smaller, noting that some people will not experience the full tax hit until they file their returns in 2014.Even the lower estimates could easily be enough to tip the economy back into recession. Mr Greenlaw says the closest precedent was in 1968, when individual, corporate, excise and payroll taxes collectively rose by the equivalent of 3.1% of GDP, mostly to pay for the Vietnam war and to damp down inflation. The next year, the economy fell into recession.

In America in 1968, as in Europe today, austerity was an explicit goal. It is not so in America now. Although both parties seem prepared to let the stimulus measures expire, neither party wants all the Bush tax cuts to end, or the sequester to take effect. But since they have radically different ideas of what should take their place, the question cannot be settled until after the election.

If Barack Obama is re-elected, he will presumably be more willing to let the Bush cuts expire than he was during his first term. He may well not have to worry about the Treasury hitting its debt ceiling until next February. Republicans, who will probably still control the House of Representatives and possibly the Senate, may realize this. They may thus be more ready to strike a grand bargain—a deficit plan that both raises some new tax revenue and reduces the growth of entitlements, such as government-funded pensions.

But it would be hard to pass such complex changes by December 31st. At best, the two sides may agree on a framework for a bargain. They would then probably extend some or all of the Bush tax cuts and delay the sequester for a year. Yet there is no guarantee they would use that time wisely and reach a deal. Credit-rating agencies may well lose patience.

If Mitt Romney wins, Republicans, who would probably in that case control the Senate as well as the House, would have no incentive to negotiate with a lame-duck president. They would wait until Mr Romney is sworn in, then (retroactively) make the Bush tax cuts permanent, insulate defense spending from the sequester, and repeal Mr Obama’s health-care reform using a parliamentary process that cannot be filibustered. All that would take months. In the interim Mr Obama would presumably not, as his last act as president, extend the tax cuts he loathes so much or spare Republicans the pain of the sequester. The full force of unintended austerity would bite—for at least a few months.

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If Obama Loses, It Will Be Because Of This One Chart

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James Pethokoukis, American Enterprise Institute

In his State of the Union response the other night, Indiana Gov. Mitch Daniels neatly summed up Mitt Romney’s (who has a roughly 90 percent chance of being the GOP nominee according to Intrade) economic case against President Barack Obama: “The president did not cause the economic and fiscal crises that continue in America tonight, but he was elected on a promise to fix them, and he cannot claim that the last three years have made things anything but worse.”

In other words, the Obama Recovery stinks. Even if today’s GDP report — for the fourth quarter of 2011 — shows 3 percent growth or better, it would be just the fourth time that has happened since the economy began turning up in June 2009: 3.8 percent in the fourth quarter of 2009, 3.9 percent in the first quarter of 2010, and 3.8 percent in the second quarter of 2010. But no 3 percent-plus quarters since then.

The first nine quarters of the Reagan Recovery, by contrast, looked like this:  5.1 percent, 9.3 percent, 8.1 percent, 8.5 percent, 8.0 percent,  7.1 percent, 3.9 percent, 3.3 percent, 3.8, percent, 3.4 percent. In fact, the Reagan Boom went from the first quarter of 1983 until the second quarter of 1986 without notching a sub-3 percent GDP quarter.

So while the Reagan Recovery quickly made up for lost years of growth, not so much for the Obama Recovery, as this chart in today’s Wall Street Journal makes clear:

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And few economists are expecting the Obama Recovery to take off anytime soon. The IMF predicts just 1.8 percent growth for 2012 (and that’s assuming no EU sovereign debt meltdown). And the Federal Reserve sees growth in the 2.2 percent to 2.7 percent range with unemployment around 8.2 percent to 8.5 percent. Ugh!

The WSJ offers two explanations for the anemic rebound:

Economists say the nature of the recession helps explain the slow recovery. Aftershocks from the financial crisis have left banks reluctant to lend, making it hard for companies, and especially start-ups, to get access to capital. The housing market, which has historically helped lead the economy out of recession, remains deeply depressed.

Many business leaders say they are also being held back by policy-related uncertainty, everything from the threat of new regulations and higher taxes to the fear that political gridlock could hamper the government’s ability to respond to a new crisis. Recent economic research has given some weight to those complaints. A study by a trio of academic economists found that policy uncertainty has risen in recent years, and that periods of uncertainty have in the past corresponded with rising unemployment and slowing growth.

Whichever explanation holds more weight with voters may go a long way toward deciding who’ll be America’s next president.

Source

Obama has deficit ownership

Wednesday, April 27, 2011

By Letters to the Editor/Gloucester County Times

To the Editor:

Joe Mingin (letter, April 17) made the tired accusation that Republicans didn’t care about the deficit when President George W. Bush was increasing it. What news media were he listening to all those years? The majority of conservatives were very critical of Bush’s spending, and said so regularly.

President Barack Obama has now increased our debt far more than any other president in history. He’s added trillions to the deficit with no thought of how we’re going to pay this all back. And this comes from someone who, just over two years ago, promised to cut the budget deficit in half by the end of his first term.

When pressed, all Obama does is talk about the need to raise taxes on the wealthy. There never seems to be a social program that he is willing to cut or do without.

The top 10 percent of income earners already pay more than 70 percent of all taxes, while the bottom 40 percent pay no taxes at all. According to experts, if all earnings were confiscated from every wealthy person in America, it wouldn’t be enough to pay our debt. It won’t be long before the middle class shoulders the burden for all those    entitlements.

In his book, “The Roots of Obama’s Rage,” Dinesh D’souza makes a convincing argument tying Obama’s actions to his father’s anti-colonial views. In 1965, Obama’s father wrote in a paper that there is no tax rate that is too high, and even a 100 percent tax rate can be justified under certain circumstances. Barack Obama Sr. believed that the rich had gotten rich at the expense of the poor and, so, should give their wealth back to the poor.

In “Dreams From My Father,” Obama suggests that he has taken on his father’s dreams. D’Souza believes Obama is on a systematic campaign against the colonial system that destroyed his father’s dreams, and is “committed to keep going until he has brought that system down.”

With the help of left-wing financier and billionaire George Soros, it seems that President Obama is on the road to doing just that.

Leda Muth Pitman

Original Article

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