|
These five new closed banks add up to 78 banks closed by the FDIC this year. Sun West Bank, Las Vegas, NV Granite Community Bank, NA, Granite Bay, CA Bank of Florida – Tampa Bay, Tampa, FL Bank of Florida – Southwest, Naples, FL Bank of Florida – Southeast, Fort Lauderdale, [...]  courtesy Sourdough Jim  courtesy Sourdough Jim
I never ever thought I would agree with Nancy Pelosi on anything, yet here it is:
I’m not against Big Oil, Little Oil, or anyone in the Oil Patch, but the liability cap is just another example of how industry uses the government to gain market advantages at the expense of someone else. In this case it is the Gulf Coast inhabitants and those that live off of that huge resource. As I understand the law, BP is responsible to pay 100% of the cost of the clean-up. What the liability cap does is to cap economic damages to $75 million. What that means is if anyone suffers a loss of income or property as a result of a spill, BP is only obligated to pay $75 million even though the losses may be in the billions. That is not right. … Continue reading Oil Drilling Liability Cap Led To The Gulf Spill A Plan For Recovery While bank closures and high foreclosure and mortgage default rates are universally seen as negative impacts on the economy, it is closures and foreclosures that we need for a recovery. The bearers of such news are usually ignored as doom-sayers, bears, or Cassandras: no one wants to hear bad news. A fear of “bad news” is what has been driving the government’s recovery policies and that is why this recession is not over. In fact those same policies may be leading us to a renewed period of decline. It is of course unfortunate and sad to see banks close and people lose their homes. But when put in the context of the boom years when personal, corporate, bank, and government debt went off the charts, deleveraging has the effect of creating the conditions needed for a recovery. We have not recovered. We see people still saddled by high personal debt. We see most banks weighed down by bad loans from commercial real estate, residential development, and consumer loans. We see deflation continue to drive residential real estate and commercial real estate down, further magnifying the the impact. As a consequence, credit is still largely frozen for most individual and business borrowers, money supply continues to shrink, the economy appears to be headed to stagnation, and unemployment remains disturbingly high. … Continue reading Why Deleveraging Is Necessary For Economic Recovery David Wessel, I have five words for you: post hoc, ergo propter hoc. Mr. Wessel is the Wall Street Journal’s chief economics commentator, and is often the face of the Journal on television. He wrote an article recently (“Bailouts Save Day, Win Scorn“) that laments the fact that, despite the fact that the bailouts saved the world, Mr. and Ms. America don’t believe it. In fact, he points out that Americans’ distrust of government and large corporations has grown as a result of the bailouts, something they see as unfair, and an example of cronyism between Wall Street and Washington. He says in the article:
Mr. Wessel is a bright guy, a star of a pro-capitalism newspaper. Yet he makes serious economic and logic errors that are not based on theory or the record. He needs a lesson in economics and epistemology (the science of how we know what we know). Post hoc, ergo propter hoc is a Latin phrase describing a logical fallacy. The fallacy is: because A occurred and then B occurred, then A caused B. In modern behavioral economics this also coincides with the principle of “confirmation bias,” where you look for data that coincides with your desired conclusion. There are two fallacies here. … Continue reading Bailouts Didn’t Save Day, Deserve Scorn The Case-Shiller report on housing for March came out today reporting that prices gained 2.3% YoY, but that the trend for the last six months continued downward. Home prices decreased 3.2% in Q1 2010, and March the unadjusted prices for their 20 cities index fell another 0.5%. This decrease is noted because it occurs despite the government’s attempts to re-ignite the market with the home buyer tax credits as incentives. All real estate is local as they say, and the declines were led by … Las Vegas. No surprise. California markets showed increases as tax credits drove sales by pulling forward future sales. Another way of saying this is that the tax credit robbed future sales for political expediency. California happens to be one of those places where people want to live and, while California is derided, its population is still growing (immigration), albeit slowly for the last couple of years. California is also home of the flipper and this business is chasing foreclosures which has created a floor under the market. Post-tax credit? It is questionable. There are continuing factors depressing prices. As noted in the Bloomberg article: … Continue reading Housing Prices Continue 6 Month Decline The housing tax credit created further disruption to the housing market, as reported by the National Association of Realtors today:
The NAR also said: … Continue reading Tax Credit Will Distort Housing Through June Remember the Bushism, “fool me once, shame on — shame on you. Fool me — you can’t get fooled again.” Or … The National Association For Business Economics just came out with their latest forecasts for the economy. That’s what brought up the old saying, “Fool me once, shame on you; fool me twice, shame on me” that George W. so magnificently bumbled. Here is what the NABE forecasts:
I guess the big question is: why should we listen to these folks? … Continue reading New Forecast From ‘Professional’ Economists This is an article on behavioral economics, markets, business cycles and Austrian theory. It was written by Doug French, president of the Mises Institute. I am reproducing it in its entirety. Anyone who invests in stocks, bonds, real estate, gold, or whatever, should read this article. After reading the article I was reminded again of the brilliance of Ludwig von Mises and how perceptive he was about his favorite topic, the study of the behavior of human beings, or what he called “human action” (praxeology). The Austrian School was originally called the Psychological School of economics because of its focus on individual behavior rather than aggregate behavior. The hot new branch of praxeology is behavioral economics, although many behavioral economists are probably not aware of this fact. In this piece, French summarizes current behavioral research and examines it in light of Austrian theory as it pertains to market behavior. The behavioral examples align well with Nassim Taleb’s Black Swan and his conclusions. Although Taleb doesn’t get into Austrian theory as a framework for economic behavior in his book, he, based on my understanding of reading other articles by Taleb, is Austrian in his outlook and conclusions.
I had no idea who Seth Klarman was until I read this article in today’s Wall Street Journal. I don’t closely follow the world of investors, except from a human interest perspective (what are these guys’ philosophies, what makes them tick). I must say that this guy is good, really good. As a fan of Black Swan theorist Nassim Taleb, I would admit it’s hard to tell if he’s lucky or good, but … Sometimes I feel a bit lonely among the large crowd of economists and investment advisors who are diametrically opposed to me as an Austrian School student of economics. I think and analyze and read about this stuff constantly and when I find someone who agrees with my conclusions or at least the main concepts I have about the economy and economics, I feel something between vindication and pride. Read this article and let me know what you think. I know many of my readers are far more sophisticated at investing than I am. But, after reading about Mr. Klarman and his commentary about the present situation, I think I would like to get to know him.
The FDIC closed only one bank this week: Pinehurst Bank, St. Paul, MN This brings this year’s total up to 73. There are more to come. See “Ten Percent of US Banks Are In Trouble.” The BLS just came out with their April state and regional unemployment/employment data: Regional and state unemployment rates were generally little changed or slightly lower in April. Thirty four states and the District of Columbia recorded unemployment rate decreases, 6 states had increases,and 10 states had no change, the U.S. Bureau of Labor Statistics [...] There was a good article in the NYT this morning on the financial regulation bill just passed by the Senate. They prepared this chart explaining the major provisions of the bill. Courtesy the New York Times [...] The FDIC reported today that the number of troubled banks rose to 775, and total assets of “problem” institutions increased from $403 billion to $431 billion:
Much of the gains seen in banking were confined to the largest banks, although 51% of banks saw growth in net income in Q1 :
The detail on loan problems is interesting, and the FDIC sees this trend leveling off: … Continue reading Ten Percent of US Banks In Trouble In its latest outlook, the Fed said:
They believe that as long as there is excess industrial capacity, we won’t have inflation. The hot topic running through the halls of the Fed is: When should it dump the $1.1 trillion of mortgage related debt and securities it bought? In a program which tried to suck bad assets out of the banks to create liquidity in the system, the Fed went on a buying spree of these assets which ended in April of this year. The data reveals that their policy has been a failure because bank credit and money supply are still declining. The result of their policy was to inject the trillion dollars in the pockets of the big banking houses who were more than pleased to dump these “toxic” assets as they were then called. When they start to sell these assets it will be an attempt to “drain the pond” of the same trillion dollars they put into these banks. Theoretically this could lead to a tightening of the money supply which they view as being too high. The fear is that if they do it too soon, they may raise interest rates, increase the liquidity squeeze, and put a brake on economic recovery. If they do it too late they fear inflation. What’s a central bank to do with such a dilemma? What is interesting is the Fed’s lack of understanding of the dynamics of inflation. They take the mostly Keynesian view that because we have idle industrial capacity, the risk of creating inflation right now is very low. In other words, injections of cash into the economy will not have an inflationary impact on prices because, until we are at near full industrial capacity, prices won’t rise. This concept is wrong. … Continue reading The Fed Has No Idea That It Causes Inflation In another data report unexpected by economists, jobless claims jumped last week: In a setback for the May payroll outlook, initial jobless claims jumped 25,000 in the May 15 week to 471,000. The disappointment includes a 2,000 upward revision to the prior week. There are no special factors to explain the latest week’s jump. [...] Another unexpected event rocks the hallways of the Treasury, the Fed and Academia as the Bureau of Labor Statistics reported today that the consumer price index unexpectedly fell 0.1% in April, the first time since March, 2009. You may recall that Bernanke, Summers, Geithner, Christina Romer, and Krugman believe that modern economics can easily [...] Again the main driver in the housing market has been tax credits. The federal government is trying to reinflate home prices and the tax credit has been their main tool. According to the latest data from CoreLogic, March home prices increased 1.7% YoY. They reported that 51 of the 100 core markets they studied increased versus a 42 market increase in February. There is a “but” to this: prices have been declining in the past three months–1.7% for January and February and another 0.3% in March. If you take out foreclosure/distressed sales from the data, from peak to trough, prices declined 21.5% through March. According to MDA DataQuick data, the market in Southern California is slowing because, among other factors, the percentage of distressed sales is declining. The flippers are starting to run out of product:
The big news was that mortgage purchase applications plummeted: … Continue reading Home Price Data Slipping: A New ‘Bust-Bust’ Cycle? This clip is Al Gore at his wacky best. Let me say that I’m not a global warming “denier” but I am a skeptic. Nor do I know of or support the Americans For Prosperity who put this clip together. But I will say that I really don’t like Mr. Gore because he exemplifies what passes for an [...] Great new Government Motors spoof of GM’s claim they’ve paid taxpayers back. You will enjoy this. Hat tip to George [...]
Part 3 of 3And it is the prospective end to fiscal stimulus that makes the Fed’s abject coddling of Wall Street so feckless. The fact is, what has mainly been going up since last spring, besides the public debt, is various measures of sentiment. The rising PMIs are an example of sentiment trends that are measured on purpose while the soaring S&P 500 index appears to be mainly a sentiment survey by default. In any event, what is not going up much is real measures of Main Street business activity. The March personal income and spending report shows that private incomes are still stuck deep in recession territory. On the same basis, as I previously reported in Did Washington Save the Economy?, March private-sector incomes (wages, interest, rents, and proprietors earnings) are still $500 billion, or 5.7%, below the pre-Lehman level. Once again, social transfer payments and public sector wages accounted for nearly all the income gain, growing by $27 billion in March compared to a miniscule uptick of $8 billion in private-sector incomes. Indeed, at March’s niggardly rate of gain, private-sector incomes won’t return to third-quarter 2008 levels for another 60 months — March 2015. On the other hand, after another month or so, the governmental transfer payment “make whole” will come to an abrupt halt, meaning that the markets will soon see that the Fed has been pushing on a string all along. Then the hissy fit will come with a vengeance. Already the recovery “evidence” recently headlined on bubble vision has taken on a thread-bare aspect. Last week, for example, the Fed’s embedded spokesman at CNBC pointed to the “strong” core capex orders for March, which he determined (within five seconds of the release) were up 4%, and then opined that this was surely an omen that new jobs are on the way, too. Had Steve Liesman taken an additional five seconds, however, he might have noted that January orders had been down by 4.4 % from the December level, and that February orders were also lower than the year-end figure by 2.5%. So what happened in the real world, then, is that first-quarter orders for capital goods excluding defense and aircraft were up a slight 1.1% from the prior quarter. In the realm of second derivatives, however, this figure wasn’t even directionally correct because the fourth-quarter gain had been 3.3% and the third-quarter pickup was 3.4%. More fundamentally, core capex orders during the first quarter were still 17% below peak levels — as well they should be with capacity utilization rates still at the lowest levels since the 1950s. … Continue reading Fed Policy Stealing From Our Future Part 3 |
||
|
© 2010 The Daily Capitalist - Nothing in this blog should be considered to be investment advice. The opinions expressed herein are those of the author and not necessarily those of The Daily Capitalist. All Rights Reserved. |
||
