Hail Bernanke: Those in Foreclosure Salute You!
Monday, August 31, 2009 | Barbara CohenRating:
This week, we saw Ben Bernanke "re-anointed" for another four years. President Barack "Change" Obama, in his heartfelt speech, thanked Bernanke for his "bold action and out-of-the-box thinking that has helped put the brakes on our economic freefall," for bringing "our economy back from the brink" and for building a "new foundation for growth and prosperity."
Hail Bernanke!
But let's take a good look at Bernanke's report card for just the past year and see whether his actions truly merit another four years at the helm.
1. Acknowledged unemployment -- 9.4%.
This does not take into consideration the millions who are underemployed and would like to be full-time employees, or those who simply cannot find work and have fallen off the unemployment rosters even though they've still searching for a job.
In April, the real unemployment number was roughly 15%, but now exceeds 20%.
2. I came. I saw. I foreclosed.
Here are some startling housing facts from the FDIC Web page:
- One out of every 200 homes will be foreclosed upon.
- Every three months, 250,000 new families enter foreclosure.
- One child in every classroom is at risk of losing his or her home.
- A slower real estate market translates into lower home values. Homeowners with adjustable-rate mortgages find that, as their mortgage rate adjusts higher, their home value is lower and therefore refinancing is no longer an option.
- Six out of 10 homeowners wished they had understood the terms of their mortgage better.
- A new category of home sales arose called "short sales," where the sale price of the home is far less than the mortgage needed to be created.
The value of the average home is down 15.1 percent from July 2008. Total housing inventory at the end of July rose 7.3 percent to 4.09 million existing homes available for sale, representing a 9.4-month supply at the current sales pace.
4. National debt cap will need to rise.
Congress will raise the legal limit later this year, according to Treasury officials. The cap the government can borrow from public or foreign creditors is limited by law to $12.1 trillion.
Treasury officials are already expecting to borrow an additional $892 billion through the end of 2009, driving the overall debt past the cap sometime in the fourth quarter.
As of Aug. 29, 2009, at 3 p.m. GMT, the outstanding debt now stands at $11,732,133,791,514.90.
5. $700 billion in 'TARP' money awarded to banks. Carpe Diem or, in this case, Carpe TARP!
Officials overseeing the bailout charged the Treasury with dereliction of duty for failure to ensure taxpayer dollars are properly spent. Many of the 364 banks that received TARP funds co-mingled the money with existing funds and had no proper accountability
Now, 18 banks who received funds didn't make dividend payments due on preferred shares from the Capital Purchase Program.
- Number of bank failures so far this year -- 84. This includes another three on Friday, Aug. 29 in Maryland, Minnesota and California.
- Disposable personal spending decreased by $4.6 billion in July alone.
- Real Gross Domestic Product, the output of goods and services produced by labor and property located in the United States, decreased at an annual rate of 1.0 percent in the second quarter. It was forecast to rise 0.2%.
Even those willing to drink Obama's Kool-Aid can't give Bernanke anything but low grades. These actions can hardly be called "bold action and out-of-the-box thinking," let alone build a "new foundation for growth and prosperity."
Caveat Taxpayer!
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Barbara Cohen
Contributing Editor
The Tycoon Report
Economic Calendar for the Week of Aug. 31-Sept. 4
MONDAY, AUG. 31
9:45 a.m. Chicago PMI
* Importance (A-F): The Chicago PMI merits a B.
* Source: Kingsbury International, Ltd. and Institute for Supply Management-Chicago, Inc.
* Release Time: Typically the last business day of the month at 9:45 a.m. Eastern
There are many regional manufacturing surveys, and they tend to be ranked in order of timeliness and the importance of the region. The New York and Philadelphia Fed's surveys are the first each month followed by the Chicago purchasing managers' report on the last day of each month. These surveys can be of some help in forecasting the national Institute for Supply Management data. The Chicago PMI index, which is released on the last business day of the month (with data for the same month), has an impressive 91% correlation with the national ISM.
Highlights
* According to the Institute of Supply Management-Chicago and Kingsbury International Ltd., the Chicago Purchasing Mangers Index increased to 43.4 in July (consensus 43.0) from 39.9 in June.
* The main point of encouragement with this report is the new orders component. It jumped to 48.0 from 41.6 in June as the region recovers from the depths of the auto industry downturn/restructuring.
* Production picked up to 43.3 from 39.3; employment rose to 35.3 from 28.9; inventories fell to 25.4 from 34.2; prices paid dipped to 35.0 from 36.3; order backlogs dropped to 32.1 from 37.6; and supplier deliveries increased to 49.6 from 43.1.
* The full report is available at www.kingbiz.com
Key Factors
* The July reading is the highest reading all year and is comfortably above the 6-month average of 37.3; however, a reading below 50 still signifies contraction.
* The message once again, then, in the July number is that the rate of decline in manufacturing activity in the Chicago Fed region has slowed.
Big Picture
* The Chicago PMI has little overall economic value, and is only watched by the financial markets because it is usually released one day in advance of the similar national ISM manufacturing survey. A significant move in this regional survey will therefore sometimes be seen as having predictive value for the ISM index.
TUESDAY, SEPT. 1
10 a.m. Institute for Supply Management
* Importance (A-F): This release merits an A-.
* Source: Institute for Supply Management
* Release Time: 10 a.m. Eastern on the first business day of the month for the prior month.
* Raw Data Available At: http://www.ism.ws
The ISM report is a national survey of purchasing managers that covers such indicators as new orders, production, employment, inventories, delivery times, prices, export orders and import orders. Diffusion indexes are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction.
The total index is calculated based on a weighted average of the following five sub-indexes, with weights in parentheses: new orders (30%), production (25%), employment (20%), deliveries (15%), and inventories (10%).
The ISM is one of the first comprehensive economic releases of the month, typically preceding the employment report. Though it covers only the manufacturing sector, it can often provide accurate hints regarding the tone of subsequent releases. During periods of inflation concerns, the prices paid and vendor deliveries indexes often determine the bond market's reaction to the report.
Highlights
* The ISM Index continued its streak of improvement, rising to 48.9% (consensus 46.5%) in July from 44.8% in June. That was the seventh straight month where the current month's reading exceeded the reading from the prior month.
* The July report was accented with some encouraging signs, namely that the new orders index at 55.3% (from 49.2%) accelerated into an expansion phase, along with production (57.9% vs. 52.5%) and exports (50.5% vs. 49.5%).
* Looking at the other component indexes, employment rose to 45.6% (from 40.7%), supplier deliveries increased to 52.0% (from 50.6%), inventories jumped to 33.5% (from 30.8%), customers' inventories dipped to 42.5% (from 43.5%), prices increased to 55.0% (from 50.0%), backlog of orders went to 50.0% (from 47.5%), and imports rose to 50.0% (from 46.0%).
Key Factors
* An overall number below 50% still connotes contraction in the manufacturing sector, but the pace of decline is clearly slowing from what was seen at the turn of the year.
* The expansion reading for new orders, production and exports, in particular, reflect a global economy that is rebounding from the depths of the fourth quarter 2008 and first quarter 2009 downturn.
* The July ISM Index brought improvement in all key measurement areas. Granted this is a survey and not hard economic data, yet the positive trends are supportive to the recovery argument, even if the jury is still out on how strong the recovery will ultimately be.
Big Picture
* This is a highly overrated index. It is merely a survey of purchasing managers. It is a diffusion index, which means that it reflects the number of people saying conditions are better compared to the number saying conditions are worse. It does not weight for size of the firm, or for the degree of better/worse. It can therefore underestimate conditions if there is a great deal of strength in a few firms. The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle. It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.
THURSDAY, SEPT. 3
10 a.m. Non-Manufacturing ISM: Institute for Supply Management
* Importance (A-F): This release merits an improved B-.
* Source: Institute for Supply Management
* Release Time: 10 a.m. Eastern on the third business day of the month for the prior month.
* Raw Data Available At: http://www.napm.org
The non-manufacturing ISM report is a national survey of purchasing managers that covers new orders, employment, inventories, supplier delivery times, prices, backlog orders, export orders and import orders. Diffusion indexes are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction.
The index should be far more indicative of the broader economy given its inclusion of service-producing as well as good-producing sectors outside of manufacturing. However, the short history of the index dates to only July 1997 and doesn't provide the insight of a longer period inclusive of varied economic climates. The seasonal adjustment of the index didn't begin until January 2001, with only 3 of the 9 components seasonally adjusted as of April 2001. The lack of historical data and lack of a tight correlation to the non-manufacturing economy leaves the relatively poor "B-" rating compared to the "A-" rating of the well-respected manufacturing ISM index.
Highlights
* In July the ISM Services Index slipped to 46.4% (consensus 48.0%) from 47.0% in June. A reading below 50% signals contraction, so the July reading can be interpreted as a sign that the slowdown in the services sector is accelerating.
* Overall business activity dropped to 46.1% from 49.8%; new orders fell to 48.1% from 48.6%; employment declined to 41.5% from 43.4%; inventories rose to 47.0% from 45.0%; the backlog of orders dipped to 42.0% from 46.0%; new export orders decreased to 47.5% from 54.5%; imports fell to 45.0% from 47.0%; inventory sentiment dropped to 62.5% from 67.0%; and supplier deliveries rose to 50.0% from 46.0%.
* The biggest change came in the prices index. It plummeted to 41.3% from 53.7%. The large drop here should certainly keep near-term inflation expectations in check.
Key Factors
* The ISM Services Index failed to follow form with the more closely-watched ISM Index that covers the manufacturing sector.
* The market doesn't normally pay too much attention to the services number since the service sector is less cyclical than the manufacturing sector.
* The negative reaction to the ISM Services report for June then probably says more about the market knowing it is in an overbought condition than it does about any genuine concern that the ISM Services Index declined 0.4 percentage points from June.
FRIDAY, SEPT. 4
10 a.m. The Employment Report
* Importance (A-F): This release merits an A.
* Source: Bureau of Labor Statistics, U.S. Department of Labor.
* Release Time: First Friday of the month at 8:30 a.m. Eastern for the prior month
* Raw Data Available At: http://stats.bls.gov/news.release/empsit.toc.htm
The employment report is actually two separate reports that are the results of two separate surveys. The household survey is a survey of roughly 60,000 households. This survey produces the unemployment rate. The establishment survey is a survey of 375,000 businesses. This survey produces the nonfarm payrolls, average workweek and average hourly earnings figures, to name a few. Both surveys cover the payroll period that includes the 12th of each month.
The reports both measure employment levels, just from different angles. Due to the vastly different size of the survey samples (the establishment survey not only surveys more businesses, but each business employs many individuals), the measures of employment may differ markedly from month to month. The household survey is used only for the unemployment measure -- the market focusses primarily on the more-comprehensive establishment survey. Together, these two surveys make up the employment report, the most timely and broad indicator of economic activity released each month.
Highlights
* July nonfarm payrolls declined -247,000 (consensus -325K) while nonfarm payrolls for June (-443K) and May (-303K) were both revised slightly lower from their prior readings.
* The unemployment rate dipped to 9.4% (consensus 9.6%) from 9.5%.
* Average hourly earnings rose 0.2% (consensus 0.1%).
* The average workweek increased to 33.1 hours (consensus 33.0) from 33.0. The manufacturing workweek increased 0.3 to 39.8 hours. That is a good portent for an improvement in industrial production, although with overtime hours staying flat, it is clear business isn't booming.
* Payroll losses were reported across nearly every major category, with the exception of small increases in education and health services ( 17K), leisure and hospitality ( 9K) and government ( 7K).
* 1 out of every 6 workers over the age of 16 still lacks full-time employment.
* The number of discouraged workers was 796,000 in July, up by 335,000 over the past 12 months.
Key Factors
* The headlines from the July report should warm the administration in Washington and they will engender confidence in the idea that the worst of the downturn is over.
* Notwithstanding the relative improvement in July, the labor market is still a troubled place. The difficulty in finding a new job is best reflected in the extension of the average duration of unemployment to 25.1 weeks from 24.5 weeks. This is the highest since records began in 1948. More alarmingly perhaps is that 1 out of every 3 unemployed workers has been unemployed for 27 weeks or longer.
* The July employment report has some encouraging characteristics, but at the end of the day there were still 247,000 jobs lost in July, bringing the total number of jobs lost since December 2007 to 6.7 million. There isn't a whole lot to cheer about there.
Big Picture
* Weekly claims for unemployment have to drop below 400,000 before payrolls will stabilize.
* Limited wage growth and declining payroll levels are a recipe for very poor consumer confidence and sluggish consumer spending.
Source: Briefing.com
