Friday, March 25, 2011
Capital Markets Update
By Louis S. Barnes Friday, March 25, 2011
The financial world is gradually relaxing from immediate fears of Japan and the Middle East. As stocks recover some of their fright losses, bonds are as usual the reverse: the 10-year T-note is back up to 3.40% (from 3.55% pre-panic, and 3.15% at brown-stain); mortgages didn’t move much and are still hanging in just below 5.00%.
The failure of these markets to snap all the way back is a reasonable reflection of new economic data. February orders for durable goods surprised on the far downside: expected to rise 1.1% they fell .9%, and there was no distortion by volatile sectors.
Housing data are numbing. Sales of existing homes were forecast to fall 4.5% in February, but dumped 9.6%, the median sales price down to the $156,100 last seen in 2002. The guesstimate for sales of new homes was a rise of 1.0%, and instead they collapsed 16.9% from January, 15% year-over-year, to an annual rate of 250,000 units, the lowest since records began. The usual idiots found the new-home crash good news, a reduction in supply, but fail to see that their price/absorption fantasy model does not correspond to a real-world housing market in a lot of trouble.
New census data helps to fill in the actual housing picture. Based on the most recent three taken, 1990, 2000, and 2010, US population grew at remarkably steady rates in the ‘90s and ‘00s, a little more than 30 million souls each decade. Total housing units, as all would expect, grew disproportionately in the ‘00s, 15.8 million units versus 13.7 million in the ‘90s, but not extreme versus the population gain.
The most striking numbers: vacant homes. The 1990 census found 10.3 million vacant, and 10.4 million in 2000; in 2010, 15 million were empty. We are clumping together into fewer but larger households to ride out hard times, and the increased vacancy rate is roughly equal to an entire year’s sales of existing homes.
This week has brought a pause in a string of global market/economic/political adventures, each one damned-if-we-do, damned-if-we-don’t, and all unstable. Their resumed movement -- soon -- will say a lot about the rest of the year.
Europe is pulling farther away from resolution of Club Med debt: Germany, Finland and Holland are turning inward, and Club Med is past the limits of austerity. The rich states want the others to repair themselves, no matter how long or great the sacrifice; but Club Med holds hostage the banks of the rich that hold their debt. The next crisis could produce a real fix, or blow it up altogether, but they’ve run out of shin plaster.
China is fighting its first big inflation since the Great Opening thirty years ago. The fight is by traditional means, the PBOC tightening credit: no modern nation has defeated a true wage-price spiral except by creating recession and unemployment. Whether the central bank has the political support to inflict the pain, we’ll see; and see the consequences of even a minor “growth recession” rippling far outside China.
Emerging Economies will be the first to learn how things go in China. Hyperbolic growth there has sucked every imaginable resource from the emerging world, making all a tad overconfident. As China’s curve inevitably flattens, a healthy thing, we and the emergings will learn their true baseline economic strength.
The Middle East for the first time in a century or more has begun to exercise control of its own affairs, the internal politics of its states and peoples moving faster than the West can intervene, even if it had the wisdom and power to do so. The North African revolutions are relatively benign, but the farther east that instability rolls, the more it will feed on itself in most unpredictable ways.
UK, brave UK, simultaneously devaluing the pound, slashing spending, and maintaining monetary ease, now must suffer rising prices. NOT inflation, as incomes are relatively flat; prices rising versus fixed incomes is the self-inflicted fall in standard of living necessary to dig out after a big party. Just as across the pond....
The US faces exactly the same issues as the UK, plus one. The UK has understood that recovery is impossible without credit. We are still stuck in a circle of flagellation: credit got us into this, therefore is bad; better to pretend to recover than restore credit.
The financial world is gradually relaxing from immediate fears of Japan and the Middle East. As stocks recover some of their fright losses, bonds are as usual the reverse: the 10-year T-note is back up to 3.40% (from 3.55% pre-panic, and 3.15% at brown-stain); mortgages didn’t move much and are still hanging in just below 5.00%.
The failure of these markets to snap all the way back is a reasonable reflection of new economic data. February orders for durable goods surprised on the far downside: expected to rise 1.1% they fell .9%, and there was no distortion by volatile sectors.
Housing data are numbing. Sales of existing homes were forecast to fall 4.5% in February, but dumped 9.6%, the median sales price down to the $156,100 last seen in 2002. The guesstimate for sales of new homes was a rise of 1.0%, and instead they collapsed 16.9% from January, 15% year-over-year, to an annual rate of 250,000 units, the lowest since records began. The usual idiots found the new-home crash good news, a reduction in supply, but fail to see that their price/absorption fantasy model does not correspond to a real-world housing market in a lot of trouble.
New census data helps to fill in the actual housing picture. Based on the most recent three taken, 1990, 2000, and 2010, US population grew at remarkably steady rates in the ‘90s and ‘00s, a little more than 30 million souls each decade. Total housing units, as all would expect, grew disproportionately in the ‘00s, 15.8 million units versus 13.7 million in the ‘90s, but not extreme versus the population gain.
The most striking numbers: vacant homes. The 1990 census found 10.3 million vacant, and 10.4 million in 2000; in 2010, 15 million were empty. We are clumping together into fewer but larger households to ride out hard times, and the increased vacancy rate is roughly equal to an entire year’s sales of existing homes.
This week has brought a pause in a string of global market/economic/political adventures, each one damned-if-we-do, damned-if-we-don’t, and all unstable. Their resumed movement -- soon -- will say a lot about the rest of the year.
Europe is pulling farther away from resolution of Club Med debt: Germany, Finland and Holland are turning inward, and Club Med is past the limits of austerity. The rich states want the others to repair themselves, no matter how long or great the sacrifice; but Club Med holds hostage the banks of the rich that hold their debt. The next crisis could produce a real fix, or blow it up altogether, but they’ve run out of shin plaster.
China is fighting its first big inflation since the Great Opening thirty years ago. The fight is by traditional means, the PBOC tightening credit: no modern nation has defeated a true wage-price spiral except by creating recession and unemployment. Whether the central bank has the political support to inflict the pain, we’ll see; and see the consequences of even a minor “growth recession” rippling far outside China.
Emerging Economies will be the first to learn how things go in China. Hyperbolic growth there has sucked every imaginable resource from the emerging world, making all a tad overconfident. As China’s curve inevitably flattens, a healthy thing, we and the emergings will learn their true baseline economic strength.
The Middle East for the first time in a century or more has begun to exercise control of its own affairs, the internal politics of its states and peoples moving faster than the West can intervene, even if it had the wisdom and power to do so. The North African revolutions are relatively benign, but the farther east that instability rolls, the more it will feed on itself in most unpredictable ways.
UK, brave UK, simultaneously devaluing the pound, slashing spending, and maintaining monetary ease, now must suffer rising prices. NOT inflation, as incomes are relatively flat; prices rising versus fixed incomes is the self-inflicted fall in standard of living necessary to dig out after a big party. Just as across the pond....
The US faces exactly the same issues as the UK, plus one. The UK has understood that recovery is impossible without credit. We are still stuck in a circle of flagellation: credit got us into this, therefore is bad; better to pretend to recover than restore credit.
Friday, March 18, 2011
Capital Markets Update
By Louis S. Barnes Friday, March 18, 2011
This week was more about human nature than economics and markets.
When Fukushima looked catastrophic, the fearful bought Treasurys and 10-year yields fell to 3.15% from 3.55% in six days, taking mortgages to 4.75%. Since Japan is now merely awful, the stock market drunks are back in charge, fright-money coming out of bonds and rates rising on the happy thought of war with Libya. Go figure.
In the US economy, little has changed. A spurt in manufacturing activity has the blind watchers of traditional patterns fondling their braille, and for once they may be right: it is possible that the US competitive gap with the world is closing. The rest of the economy... the Fed’s post-meeting statement said the “recovery is on firmer footing.” Fair enough. No footing is firmer than flat ground, and stripped of revisions that’s what the new-data trend was: core CPI, industrial production, starts and permits for new homes, mortgage applications, unemployment claims... flat.
The Fukushima story began without the benefit of competent media. Anybody with history compulsion, let alone nuclear OCD, knew Saturday morning that seawater injection and hydrogen explosion meant meltdown. CNN for the next four days chopped off any nuclear expert in the first sentence and went back to footage of crying babies and tsunami. Monday’s markets were quiet; not until Tuesday morning trading in Asia did nuclear glow dawn, and the Nikkei crash 15% in five minutes. I did not find the first capable TV account until Tuesday evening, on Rachel Maddow of all productions.
Compounding the media weakness is the historical inability of Japanese institutions to pass negative news from the field to leadership (who knew that Guadalcanal wasn’t going well?), and these guys are taking top trophy from Brownie and FEMA. Every bit as bad: the determined optimism near stock markets, an astounding number of analysts claiming that rebuilding will be good for Japan and the global economy.
All that you need to know: if not one CH-47 pilot could hover for the 15 seconds necessary to dump a bucket on target... that place is hot. However, that hard radiation is not moving: there is no Chernobyl graphite-fire volcano to move it. Long-term contamination will move, but not in human-harmful dose; yet, enough strontium and cesium to make plants and grazing animals inedible for a long time, in a large area.
Scale. Russia’s land area is 6,592,800 square miles. All of Japan is 145,903. The Chernobyl exclusion zone is 3,560 square miles. Fukushima’s extent cannot be known now, but there won’t be anybody on a beach towel near there for a long time.
Follow the money. Japan’s finances are the weakest of all large nations, in John Mauldin’s observation, “a bug in search of a windshield.” Debt 200% of GDP, going higher. Windshield found. Japan’s deepest financial problem is demography. It is one of the oldest of all nations, vaunted savings rate dropping to zero, and its population five years ago began to shrink outright. In the last week or so, prospects for immigration there have not improved, nor for conception.
In post-catastrophe we all tend to fall into counter-panic, desperate to prevent recurrence. Ban nuclear power altogether, when resistance to new-build is responsible for the hazards of so many overage plants? Embrace the rising price and environmental damage of fossil fuel, or the impoverishing mega-cost of renewables?
Rebuild... what? The towns on Honshu’s north shore lie on compact river deltas, the mountains beside them perfect magnifiers of tsunami. Re-build only above this apocalyptic high-water mark? Or live behind new 100-foot-high sea walls? How quaint. Lovely. Build for another 9.0? Or figure you’ve taken the once-a-millennium shot, and build (again) for 7.9? Or for 9.5?
Leadership everywhere, not just Japan, constantly fails to look around corners, freezes in emergencies, and then overreacts once it’s all over. Yet the individual collective keeps moving, goes to work, tends kids, brushes off, smiles, and looks to a better day. I could draw an allegory to a mortgage and housing meltdown, but... nah.
This week was more about human nature than economics and markets.
When Fukushima looked catastrophic, the fearful bought Treasurys and 10-year yields fell to 3.15% from 3.55% in six days, taking mortgages to 4.75%. Since Japan is now merely awful, the stock market drunks are back in charge, fright-money coming out of bonds and rates rising on the happy thought of war with Libya. Go figure.
In the US economy, little has changed. A spurt in manufacturing activity has the blind watchers of traditional patterns fondling their braille, and for once they may be right: it is possible that the US competitive gap with the world is closing. The rest of the economy... the Fed’s post-meeting statement said the “recovery is on firmer footing.” Fair enough. No footing is firmer than flat ground, and stripped of revisions that’s what the new-data trend was: core CPI, industrial production, starts and permits for new homes, mortgage applications, unemployment claims... flat.
The Fukushima story began without the benefit of competent media. Anybody with history compulsion, let alone nuclear OCD, knew Saturday morning that seawater injection and hydrogen explosion meant meltdown. CNN for the next four days chopped off any nuclear expert in the first sentence and went back to footage of crying babies and tsunami. Monday’s markets were quiet; not until Tuesday morning trading in Asia did nuclear glow dawn, and the Nikkei crash 15% in five minutes. I did not find the first capable TV account until Tuesday evening, on Rachel Maddow of all productions.
Compounding the media weakness is the historical inability of Japanese institutions to pass negative news from the field to leadership (who knew that Guadalcanal wasn’t going well?), and these guys are taking top trophy from Brownie and FEMA. Every bit as bad: the determined optimism near stock markets, an astounding number of analysts claiming that rebuilding will be good for Japan and the global economy.
All that you need to know: if not one CH-47 pilot could hover for the 15 seconds necessary to dump a bucket on target... that place is hot. However, that hard radiation is not moving: there is no Chernobyl graphite-fire volcano to move it. Long-term contamination will move, but not in human-harmful dose; yet, enough strontium and cesium to make plants and grazing animals inedible for a long time, in a large area.
Scale. Russia’s land area is 6,592,800 square miles. All of Japan is 145,903. The Chernobyl exclusion zone is 3,560 square miles. Fukushima’s extent cannot be known now, but there won’t be anybody on a beach towel near there for a long time.
Follow the money. Japan’s finances are the weakest of all large nations, in John Mauldin’s observation, “a bug in search of a windshield.” Debt 200% of GDP, going higher. Windshield found. Japan’s deepest financial problem is demography. It is one of the oldest of all nations, vaunted savings rate dropping to zero, and its population five years ago began to shrink outright. In the last week or so, prospects for immigration there have not improved, nor for conception.
In post-catastrophe we all tend to fall into counter-panic, desperate to prevent recurrence. Ban nuclear power altogether, when resistance to new-build is responsible for the hazards of so many overage plants? Embrace the rising price and environmental damage of fossil fuel, or the impoverishing mega-cost of renewables?
Rebuild... what? The towns on Honshu’s north shore lie on compact river deltas, the mountains beside them perfect magnifiers of tsunami. Re-build only above this apocalyptic high-water mark? Or live behind new 100-foot-high sea walls? How quaint. Lovely. Build for another 9.0? Or figure you’ve taken the once-a-millennium shot, and build (again) for 7.9? Or for 9.5?
Leadership everywhere, not just Japan, constantly fails to look around corners, freezes in emergencies, and then overreacts once it’s all over. Yet the individual collective keeps moving, goes to work, tends kids, brushes off, smiles, and looks to a better day. I could draw an allegory to a mortgage and housing meltdown, but... nah.
Friday, March 11, 2011
Capital Markets Update
By Louis S. Barnes Friday, March 11, 2011
For bonds and mortgages, this has been a classic bad-news-is-good-news week. All of those certain that nobody, no matter how frightened, would put money into US IOUs just got trampled by the in-rush. The 10-year T-note has traded under 3.40% resistance, and mortgages are sliding toward 4.75%, both tied with four-month lows.
Moving the mob: Middle East heebie-jeebies, of course, even though oil is flowing nicely. China is probably slowing, maybe a lot. Japan's earthquake and tsunamis.
And Europe is in magnificent, oblivious denial as the euro experiment comes apart. Ireland paid 8.1% for two-year money this week, and Greece 16.4%, versus Germany's 1.7%. Leaders say the euro will be fine because it must be, resembling British infantry in 1917 Flanders singing to the tune of Auld Lang Syne, "We're here because we're here, because we're here because we're here; we're here....”
In the US, to escape the negative-feedback loop of recession and achieve self-reinforcing recovery requires artificial stimulus. The blessed moment of entry to positive feedback has been announced for two solid years, but obviously has not arrived. The stimulus in train is greater than previously imagined anywhere: the Fed at 0% cost of money for two years; fifty cents of every Treasury dollar spent has been borrowed, and the Fed is buying those IOUs at $120 billion per month, by June $2.3 trillion overall.
Something is intercepting the stimulus. Economic physicians have intubated the patient, breathing for it, and energetically applied paddles to jump-start its heart. However, to no effect: there is some barrier between paddles and patient. Have we forgotten to take the covers off before jolting? Afraid the family will see the real condition of the patient? "CLEAR!!" Bzzzt. BZZZT. BZZZZZZTTT!!. Smoke rising from the victim, but no ticker. Dead as a hammer.
Hey! Fellas! How about housing? Might that be blocking the stimulus? 25% of mortgaged households now under water, 11 million families? Prices down another 2.5% in January (CoreLogic), and Wall Street idiots think it's progress, good news.
Does anyone in authority have a housing plan?
1. Home ownership has dropped from 69% to 67% toward the 64% prevailing before madness set in. Is that the new target? Or 60%, or 55%? Is there a target?
2. Each of those homes converting ownership requires an investor-buyer, and mortgages for investors are about as plentiful as 1932. Will we let foreclosed homes pile up and fall in price until investors come up with all-cash?
3. Speaking of prices... the total value of US homes (Fed Z-1) has fallen from $22.7 trillion in 2006 to $16.4 trillion at the end of 2010. Hey, guys! What's the target? The $12.1 trillion in 2000? Versus today's $10.5 trillion in mortgages... is America a better, sounder place with no home equity at all?
4. Prices... after they fall to wherever they are going, do we expect them to stay there? For how long -- without aid, without credit? For the fifteen years it would take for current loan balances to amortize down to wherever prices may land? Hard to tell how long, exactly, if prices fall faster than amortization.
5. You nincompoops panicked and doubled the monthly FHA mortgage insurance premium effective April 1. Perfect day. I know, you're terrified the FHA will call for cash to cover losses. But, credit is so scarce that expensive FHA provides more than half of today's mortgages, and you want to shut that down, too? If you're afraid of the FHA's losses, how much larger will they be if you drive away more buyers?
6. Speaking of which, Timmy Geithner's White Paper on Fannie and Freddie called for wind-down and closure, to be replaced with aid to low- and moderate-income renters, and a "private" mortgage market. The most recent private market gave us sub-prime loans and the Bubble, and the one before that ended in 1932. How do you suppose the average buyer feels about wrecking what's left of mortgage supply?
If rising American home values are in the national interest, would you -- Fed, White House, Treasury, Congress -- please say so? Even if you don't know what to do?
For bonds and mortgages, this has been a classic bad-news-is-good-news week. All of those certain that nobody, no matter how frightened, would put money into US IOUs just got trampled by the in-rush. The 10-year T-note has traded under 3.40% resistance, and mortgages are sliding toward 4.75%, both tied with four-month lows.
Moving the mob: Middle East heebie-jeebies, of course, even though oil is flowing nicely. China is probably slowing, maybe a lot. Japan's earthquake and tsunamis.
And Europe is in magnificent, oblivious denial as the euro experiment comes apart. Ireland paid 8.1% for two-year money this week, and Greece 16.4%, versus Germany's 1.7%. Leaders say the euro will be fine because it must be, resembling British infantry in 1917 Flanders singing to the tune of Auld Lang Syne, "We're here because we're here, because we're here because we're here; we're here....”
In the US, to escape the negative-feedback loop of recession and achieve self-reinforcing recovery requires artificial stimulus. The blessed moment of entry to positive feedback has been announced for two solid years, but obviously has not arrived. The stimulus in train is greater than previously imagined anywhere: the Fed at 0% cost of money for two years; fifty cents of every Treasury dollar spent has been borrowed, and the Fed is buying those IOUs at $120 billion per month, by June $2.3 trillion overall.
Something is intercepting the stimulus. Economic physicians have intubated the patient, breathing for it, and energetically applied paddles to jump-start its heart. However, to no effect: there is some barrier between paddles and patient. Have we forgotten to take the covers off before jolting? Afraid the family will see the real condition of the patient? "CLEAR!!" Bzzzt. BZZZT. BZZZZZZTTT!!. Smoke rising from the victim, but no ticker. Dead as a hammer.
Hey! Fellas! How about housing? Might that be blocking the stimulus? 25% of mortgaged households now under water, 11 million families? Prices down another 2.5% in January (CoreLogic), and Wall Street idiots think it's progress, good news.
Does anyone in authority have a housing plan?
1. Home ownership has dropped from 69% to 67% toward the 64% prevailing before madness set in. Is that the new target? Or 60%, or 55%? Is there a target?
2. Each of those homes converting ownership requires an investor-buyer, and mortgages for investors are about as plentiful as 1932. Will we let foreclosed homes pile up and fall in price until investors come up with all-cash?
3. Speaking of prices... the total value of US homes (Fed Z-1) has fallen from $22.7 trillion in 2006 to $16.4 trillion at the end of 2010. Hey, guys! What's the target? The $12.1 trillion in 2000? Versus today's $10.5 trillion in mortgages... is America a better, sounder place with no home equity at all?
4. Prices... after they fall to wherever they are going, do we expect them to stay there? For how long -- without aid, without credit? For the fifteen years it would take for current loan balances to amortize down to wherever prices may land? Hard to tell how long, exactly, if prices fall faster than amortization.
5. You nincompoops panicked and doubled the monthly FHA mortgage insurance premium effective April 1. Perfect day. I know, you're terrified the FHA will call for cash to cover losses. But, credit is so scarce that expensive FHA provides more than half of today's mortgages, and you want to shut that down, too? If you're afraid of the FHA's losses, how much larger will they be if you drive away more buyers?
6. Speaking of which, Timmy Geithner's White Paper on Fannie and Freddie called for wind-down and closure, to be replaced with aid to low- and moderate-income renters, and a "private" mortgage market. The most recent private market gave us sub-prime loans and the Bubble, and the one before that ended in 1932. How do you suppose the average buyer feels about wrecking what's left of mortgage supply?
If rising American home values are in the national interest, would you -- Fed, White House, Treasury, Congress -- please say so? Even if you don't know what to do?
Friday, March 4, 2011
Capital Markets Update
By Louis S. Barnes Friday, March 4, 2011
Markets for long-term credit this week dodged not one bullet but an entire volley.
The 10-year T-note has been expected to rise through 4.00% and take mortgages toward 6.00%; instead the 10-year slid to 3.40% and held in the 3.50s in the face of strong economic reports.
The bullets.... The first week each month brings flash news about the prior month, and the most definitive data. The ISM surveys of manufacturing and services both outperformed in February at extraordinary levels, 61.4 and 59.7 respectively, multi-year highs associated with GDP growing 5%-8%. The slippery aspect: they measure only better/worse from respondents, blind to how much better. No question: the manufacturing side is hot because pent-up demand for autos released, some 27% above February last year. The damned things do wear out, and we do get tired of them.
Retail sales have continued to show strength in excess of income growth. Add 2,000 points to the Dow in five months, and those who own stocks open wallets.
News from overseas pushed stocks up (before today) and hurt bonds. Oil prices stopped at $100/bbl, in the absence of any real interruption in supply; and the European Central Bank indicated a rate rise, leaning into German heat.
Today brought a weak-side surprise. The most important single report each month is the change in payrolls in the prior month. All markets by yesterday had talked themselves into a breakout number -- the long-awaited surge in jobs. For the umpteenth time in four years... didn't get it. Oh, we added 192,000 jobs in February, and picked up a cumulative 58,000 revision from Dec-Jan, and the fewest people filed for unemployment insurance last week in three years, but the details are miserable.
Worker earnings -- after all, the whole point of the exercise -- have been declining for three months straight. Those going back to work are doing so at lesser jobs. Nine million people are still "involuntary part-time," unchanged. The fraction of the US population at work is 58.4%, the lowest in 27 years (when women first began to go work in large numbers); steady in February but lower than last fall.
Let me try to knit all of this together, and then fail to stuff the resulting sock into my smart-mouth frustration with media and policy makers.
If you're the S&P 500 companies, you're doing very well. However, two-thirds of your profits and all of your hiring are overseas. If you're a business of any size plugged in to global markets, you're fine. If you're IT, you're okay -- leading edge is a good place to be. If you're in the health-care mafia, there's no limit to how much you can charge. The Corleones should have had such a protection racket.
If you're not in one of those spaces, you're worried. Too worried to spend or to hire.
The media commentariat was captured by stock-market cheerleading a long time ago, and responsible business voices are scarce. If rich-guy's rich buddies stop worrying, then everything must be fine. Age has worn threadbare spots in Warren Buffett's country-uncle act, which reveal the cold killer beneath. Berkshire is again drowning in cash, Buffett complaining that he can't find another giant company to buy, and said this week that there is too much economic stimulus. The same guy who profiteered on the financial crash, the principal stockholder in Moody's who has fought all efforts to reform rating agencies, had no promises for Berkshire plans to hire.
Buffett's bridge partner, Bill Gates, is one of the few rising to the occasion. In a don't-miss interview with Charlie Rose, dedicated to budget trouble at all levels of government, Gates showed jaw-dropped urgency, near anger at his discoveries of budget malfeasance and hazard (details at www.thegatesnotes.com).
What to do, to restore confidence, get us moving? No longer worthy of coverage: housing. Boring, boring, boring. Mortgage applications down another 6% last week, and 19% year-over-year. And no talk among authorities except how to withdraw support for mortgage credit, and tighten the remainder.
Markets for long-term credit this week dodged not one bullet but an entire volley.
The 10-year T-note has been expected to rise through 4.00% and take mortgages toward 6.00%; instead the 10-year slid to 3.40% and held in the 3.50s in the face of strong economic reports.
The bullets.... The first week each month brings flash news about the prior month, and the most definitive data. The ISM surveys of manufacturing and services both outperformed in February at extraordinary levels, 61.4 and 59.7 respectively, multi-year highs associated with GDP growing 5%-8%. The slippery aspect: they measure only better/worse from respondents, blind to how much better. No question: the manufacturing side is hot because pent-up demand for autos released, some 27% above February last year. The damned things do wear out, and we do get tired of them.
Retail sales have continued to show strength in excess of income growth. Add 2,000 points to the Dow in five months, and those who own stocks open wallets.
News from overseas pushed stocks up (before today) and hurt bonds. Oil prices stopped at $100/bbl, in the absence of any real interruption in supply; and the European Central Bank indicated a rate rise, leaning into German heat.
Today brought a weak-side surprise. The most important single report each month is the change in payrolls in the prior month. All markets by yesterday had talked themselves into a breakout number -- the long-awaited surge in jobs. For the umpteenth time in four years... didn't get it. Oh, we added 192,000 jobs in February, and picked up a cumulative 58,000 revision from Dec-Jan, and the fewest people filed for unemployment insurance last week in three years, but the details are miserable.
Worker earnings -- after all, the whole point of the exercise -- have been declining for three months straight. Those going back to work are doing so at lesser jobs. Nine million people are still "involuntary part-time," unchanged. The fraction of the US population at work is 58.4%, the lowest in 27 years (when women first began to go work in large numbers); steady in February but lower than last fall.
Let me try to knit all of this together, and then fail to stuff the resulting sock into my smart-mouth frustration with media and policy makers.
If you're the S&P 500 companies, you're doing very well. However, two-thirds of your profits and all of your hiring are overseas. If you're a business of any size plugged in to global markets, you're fine. If you're IT, you're okay -- leading edge is a good place to be. If you're in the health-care mafia, there's no limit to how much you can charge. The Corleones should have had such a protection racket.
If you're not in one of those spaces, you're worried. Too worried to spend or to hire.
The media commentariat was captured by stock-market cheerleading a long time ago, and responsible business voices are scarce. If rich-guy's rich buddies stop worrying, then everything must be fine. Age has worn threadbare spots in Warren Buffett's country-uncle act, which reveal the cold killer beneath. Berkshire is again drowning in cash, Buffett complaining that he can't find another giant company to buy, and said this week that there is too much economic stimulus. The same guy who profiteered on the financial crash, the principal stockholder in Moody's who has fought all efforts to reform rating agencies, had no promises for Berkshire plans to hire.
Buffett's bridge partner, Bill Gates, is one of the few rising to the occasion. In a don't-miss interview with Charlie Rose, dedicated to budget trouble at all levels of government, Gates showed jaw-dropped urgency, near anger at his discoveries of budget malfeasance and hazard (details at www.thegatesnotes.com).
What to do, to restore confidence, get us moving? No longer worthy of coverage: housing. Boring, boring, boring. Mortgage applications down another 6% last week, and 19% year-over-year. And no talk among authorities except how to withdraw support for mortgage credit, and tighten the remainder.
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