Depression in the USA - Deflation verus Inflation

[STRAT]

The last time I posted something from the daily reckoning I was well and truely told off. Scare mungering I think someone said

[Halebop]

--GE used to be company that made money by making things. Now it's a company that loses money by lending money. It's a pretty good symbol for much of what's wrong about American capitalism. The truth is, it should probably be two companies, not one.

The current quarter earnings equate to US$2.15b. Extrapolated over 4 quarters this is $8.6b. Well down on 2007 where Finance generated around $10.5b on $57b in equity but hardly a company that "loses money by lending money".

While the bears have control, it appears hyperbole has been replaced by a brand of equally hysterical understatement. I prefer to keep my dispassion intact so I can eventually profit while the bears continue to gnash their teeth. This correction has all been done before - it was easy to see coming - just as it will be easy to see changing. Keep centred and profit lest you find yourself wondering around, replete with lank hair and stained coat and an "End is Nigh!" board strapped to your chest.

[skinny]

Indeed, I bought some GE after the sell down. Amongst other reasons, there are around 700 large power plants in the US built in the 1950s and 60s that are ending their useful lives over the next 2 decades. GE stands to benefit enormously from this given its industrial prowess, particulalry in the nuclear-generation feild.

[tricha]

The current quarter earnings equate to US$2.15b. Extrapolated over 4 quarters this is $8.6b. Well down on 2007 where Finance generated around $10.5b on $57b in equity but hardly a company that "loses money by lending money".

While the bears have control, it appears hyperbole has been replaced by a brand of equally hysterical understatement. I prefer to keep my dispassion intact so I can eventually profit while the bears continue to gnash their teeth. This correction has all been done before - it was easy to see coming - just as it will be easy to see changing. Keep centred and profit lest you find yourself wondering around, replete with lank hair and stained coat and an "End is Nigh!" board strapped to your chest.

ShareChat News: Even RB getting nervous as economic alarm bells ring

By NZPA
Wednesday 7th May 2008


Economists said today even the Reserve Bank is getting nervous as economic alarm bells start to clang louder.
Bellwether retail stock Briscoe Group today reported a 10% fall from last year in its April quarter same store sales.
Briscoe managing director Rob Duke said other companies would be similarly hit as households, socked by soaring food petrol and interest bills, stopped their discretionary spending.
"You watch other stocks go," he said. "We are just the first cab off the rank. I think everyone is going to get crunched big time.
"Our customers have been absolutely smashed."
At the same time today, the Reserve Bank issued its half yearly report on the banking system when Governor Alan Bollard was at pains to point out a raft of risks to the system and economy.
He also announced some special measures to boost liquidity in case the global credit malaise deeply infects New Zealand.
"The message is `brace yourself'," BNZ economist Craig Ebert said.
The Briscoe report, which showed same store sales in its Rebel Sport chain down 15%, was indicative of the sort of thing happening in the economy, he said.
However, retail spending and housing were the very areas he expects to go soft and it did not necessarily mean the wider economy was going backwards.
The risks mentioned by the Reserve Bank included the overvalued housing market, stretched household balance sheets and upward pressure on funding costs.
NZ business profitability and cash flow were concerns and the bank warned commercial and industrial property prices would probably fall. New dairy farm entrants had stretched debt levels.
Problems for finance companies, although unlikely to disrupt the banking system or economy, would continue.
Banks were told to diversify funding sources, lengthen the maturity structure of their debt and improve assessments of exposure to economic slowdown.
Bollard said the kiwi dollar was still high and at risk of a steep fall.
On top of all this, the global economy remains a risk.
"It's a long list of concern," said Ebert, who believes Bollard may well start easing rates sooner than the December target.
Bollard refused to answer questions on monetary settings.
There is other evidence emerging of economic stress.
Debt collector and credit agency Veda Advantage reported debt defaults rose 40% in the March quarter from a year ago.
Veda NZ director John Roberts said many households and small and medium-sized enterprises (SMEs) were not paying their bills, particularly for phones and credit cards. For the first time, SMEs were featuring prominently, he added.
Yesterday, Auckland real estates firm Barfoot & Thompson reported house sales halved in April from a year ago and prices were down 2.2% on a year ago.
Goldman Sachs JBWere economist Shamubeel Eaqub said the "housing implosion" could see the economy could fall of a cliff because households were so in debt and that had been backed by house prices. And that could happen as the financial system faced heavy strains due to the global credit crunch.
He called on the Reserve Bank to cut interest rates now.
"At 8.25%, monetary policy is leaning very hard against the economy and we think that is absolutely the wrong stance to have at this stage of the cycle," he told Radio New Zealand.
Duke said mortgage rates rising from 6-7% to nearly 10% and the rise in petrol to around $2 a litre was severely affecting discretionary spending.
"If Briscoe Group and a whole series of other retail enterprises start reporting, and they will, the sorts of numbers that we are reporting, somewhere someone in Government has to sit down and go `Holy Hell, so it's going to slow down this much', and they ought to prepare everyone for that or do something about it."
Duke said tax cuts in September and October would be insufficient to rectify the situation.
He said he had experienced belt tightenings before, but the question is "how tight is tight?"
Whether it was its fault or not, the Government would pay at the general election due in October or November, he said.
Duke said when parents were being squeezed, they were not going to buy their child a new pair of football boots.
Bollard acknowledged a risk of a sharper slowdown than predicted, particularly if the global economy dives. However, China and Australia's economic strength was helping the local economy. Any slowdown would "assist in unwinding some significant economic imbalances that have built up over recent years and have left the economy more exposed to economic shocks", he said.

[Dr_Who]

Hig commodity prices with falling $NZ will fuel inflation, so I dont know how the RB can justify lowering interest rate with inflation over 3%.

[Steve]

Meanwhile, does anyone have any updated thoughts on how the US is going?

[trendy]

FED holdings of treasuries have dropped from $800B to $539B. More drop is to come as AAA/aaa swapped securities are going to blow up.

http://www.bloomberg.com/apps/news?p...G3A&refer=home

Rubenstein Says `Enormous' Bank Losses Unrecognized (Update2)

By Ryan J. Donmoyer and Alison Fitzgerald

May 12 (Bloomberg) -- U.S. and European banks and financial institutions have ``enormous losses'' from bad loans they haven't yet recognized and may have a harder time wooing sovereign-fund rescuers, Carlyle Group Chairman David Rubenstein said.

``Based on information I see,'' it will take at least a year before all losses are realized, and some financial institutions may fail, Rubenstein said at a breakfast meeting of the Institute for Education Public Policy Roundtable in Washington. He didn't name any companies.

``The sovereign wealth funds are not likely to jump into the fray again to bail out these institutions,'' Rubenstein said. ``Many financial institutions aren't going to be able to survive as independent institutions.''

Rubenstein said sovereign wealth funds are becoming wary after losing $25 billion on their investments in struggling banks and securities firms worldwide.

Financial institutions worldwide have recorded $329.2 billion in credit losses and writedowns and raised $246.6 billion in capital since the beginning of 2007. Rubenstein said about $60 billion of that capital was provided by sovereign funds last fall, and their investments today are worth about $35 billion.

Opportunity

On April 28 at a conference in Baltimore, Rubenstein said financial institutions and financial assets are ``the single greatest investment opportunities'' in the U.S. and ``a lot of private-equity firms like ours are going to try to make investments in these firms.''

Sovereign wealth funds and private-equity firms typically have different investment goals. Sovereign funds usually buy a minority stake in a quest for share-price appreciation, while private-equity firms often assume an ownership role and try to rebuild distressed companies.

Rubenstein said today that the industry and broader economy aren't likely to turn around until early next year.

``The truth is, we're in some kind of economic slowdown,'' Rubenstein said. ``I don't think it's going to be over for quite a while.''

He said the U.S. slowdown doesn't seem to be spreading to the rest of the world because the U.S. economy makes up a smaller share of global economic activity than it has in the past, when recessions typically spread worldwide.

Not as `Important'

``We're not as quite as important to the rest of the world economy,'' he said. He predicted ``slow to no growth'' for the next quarter or two.

The economy's troubles, compounded with tighter lending standards, have brought the leveraged-buyout industry to a standstill, he said. There are fewer buying opportunities because many owners of companies have an inflated and irrational sense of their property's value, he said.

``As soon as there is a little tick-up in the economy, people will want to sell again,'' he said. Rubenstein said he expected leveraged-buyout activity to pick up again after the November presidential election.

Ultimately, he said, he expects more private-equity firms will go public and consolidate like investment banks did 20 years ago, leaving a handful of ``brand-name'' firms controlling the industry.

``We'll see private-equity firms try to buy other private- equity firms,'' Rubenstein said.

[steve fleming]

From Macquarie Research Daily Commodities Comment today:

Global economics
Was that the low point?
Summary

·Another month, another US retail sales release that does not show collapsing spending. Household spending growth has been negligible over recent months, mainly due to sliding auto sales. But so far US consumers have not cut overall spending dramatically.


·Unfortunately the data have been skewed by price increases for gasoline and food. So it is hard to get a handle on the volume of retail sales. Yet the resiliency of some discretionary items, such as clothing and electronics sales, is encouraging.


·Especially since the tax rebates are in the mail and consumer spending should pick up over the next few months. Furthermore, spending increases are increasingly likely to favour US domestic producers.


·Import prices are soaring and this is not just due to higher energy prices. The prices of imported manufactured goods are on the rise, including a rising trend for the prices of imports from China.


·This does not mean that US demand for Chinese exports is about to come to a halt. But it will be a limiting factor and will make it a bit easier for US producers to capture the benefits of the tax rebates.


·The good news from a production viewpoint is that stronger demand for US goods will come when inventories are under control.


·An unexpected drop in retail inventories in March points to a significant downward revision to the Q1 inventory contribution. This will partly offset the large upward revision from the lower trade deficit.


·Yet it also reduces the chances of an inventory hit to GDP growth in the current quarter. So it is conceivable that the production low point may have already passed.

·The relentless rise in the price of oil is still a downside risk to demand and this could yet be a significant problem for US output growth. So there will be considerable uncertainty over coming months. But the data released so far do not support the case for a deep recession in the US and perhaps the point of maximum pessimism has passed.

[tricha]

From Macquarie Research Daily Commodities Comment today:

Global economics
Was that the low point?
Summary

·Another month, another US retail sales release that does not show collapsing spending. Household spending growth has been negligible over recent months, mainly due to sliding auto sales. But so far US consumers have not cut overall spending dramatically.


·Unfortunately the data have been skewed by price increases for gasoline and food. So it is hard to get a handle on the volume of retail sales. Yet the resiliency of some discretionary items, such as clothing and electronics sales, is encouraging.


·Especially since the tax rebates are in the mail and consumer spending should pick up over the next few months. Furthermore, spending increases are increasingly likely to favour US domestic producers.


·Import prices are soaring and this is not just due to higher energy prices. The prices of imported manufactured goods are on the rise, including a rising trend for the prices of imports from China.


·This does not mean that US demand for Chinese exports is about to come to a halt. But it will be a limiting factor and will make it a bit easier for US producers to capture the benefits of the tax rebates.


·The good news from a production viewpoint is that stronger demand for US goods will come when inventories are under control.


·An unexpected drop in retail inventories in March points to a significant downward revision to the Q1 inventory contribution. This will partly offset the large upward revision from the lower trade deficit.


·Yet it also reduces the chances of an inventory hit to GDP growth in the current quarter. So it is conceivable that the production low point may have already passed.

·The relentless rise in the price of oil is still a downside risk to demand and this could yet be a significant problem for US output growth. So there will be considerable uncertainty over coming months. But the data released so far do not support the case for a deep recession in the US and perhaps the point of maximum pessimism has passed.

These facts below Steve do not support the above.


Home Depot hit by housing slump


Home Depot is the world's biggest home improvement retailer


Shares in Home Depot fell 5.2% in New York after the DIY chain reported a 66% fall in three month profit, hit by the US housing slump.
Net earnings fell to $356m (£181m), which included a $543m charge for closing 15 stores and scrapping plans to open 50 new ones.
Home Depot also warned that full year profit could fall by as much as 24%.
Sales were hardest hit in areas such as Florida and California that have seen the biggest housing slowdowns.
"The housing and home improvement markets remained difficult in the first quarter; in fact, conditions worsened in many areas of the country," said Home Depot's chairman and chief executive Frank Blake. But there was better news from outside the US, with sales rising at its stores in Canada, Mexico and China.

[STRAT]

Hi Steve and Tricha,
It wouldnt be hard for me to get out of my depth here but wouldnt it be fair to say that economic data out of the US has been blatantly manipulated, twisted to the point of being plain and simple bull**** since the middle of last year and for what ever reason the US stock market are buying it. Seems to me and has for some time, sooner or the later the penny should drop. Thing is, of late they almost and I say almost seem to be pulling it off. Still dont know whether they will bull**** their way into a mild recession or send the whole wagon train off the end of a cliff but I do know we will follow them so I still have my finger on the sell button every day.