Five Things You Need to Know: Whom To Believe: Recession by the Numbers, or by the Pain?
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Whom To Believe: Recession by the Numbers, or by the Pain?
Are we really already in a recession, and why does it even matter? Let's answer the first part of the question, then we'll look at the second, whether it even matters.
While economic data has been doing its part to forestall what has at times seemed to be the inevitability of a looming recession (just last week pundits were trotting out The Goldilocks Economy), this morning we see where both Alan Greenspan (in the Financial Times) and Warren Buffett (to the German news magazine, Der Spiegel) are doing their part to resurrect recession fears. What gives?
Well, on the one hand both Buffett and Greenspan, at least since leaving the Federal Reserve in the latter's case, are savvy enough to understand that the people love a good "straight shooter" about the economy. On the other hand, the economic reality is increasingly not being reflected in the numbers. Why? Pehaps because economic pain given our debt load - both as a country and as individuals - has reduced the threshold for pain tolerance.
Bot look, does it even matter if we are in a recession? Sure, it matters if one is experiencing a recession, but in the aggregate? Not really. None of us are going to make trades or investments around the standard economists' recession naming convention. We will know a recession when we feel one; the rest is just cocktail party chatter.
2. Real Estate: Good News/Bad News/Worse News
First the good news: New Home Sales rose 3.3% in April off the prior month's 17-year low watermark, according to the Commerce Department. That was quite a bit more than most economists had forecast. As well, inventories fell to 10.6 months' worth of homes at the current pace of sales, down from March's 11.1 months' of inventory.
Now, the bad news: The S&P/Case-Shiller index showed home prices fell 14.1% in the first quarter. Nineteen of the 20 cities in the index showed a year-over-year decrease in prices for March, led by a 26 percent slump in Las Vegas and a 25 percent decline in Miami. Eighteen of 20 showed monthly declines in price.
And finally, worse news: Although new home sales upticked between March and April, year-over-year home sales were down 42% from 2007 levels, the largest year-over-year decline since September 1991. Also, keep in mind that new home sales account for just a sliver of the overall real estate market, about 15%. Previously-owned homes account for 85%.
3. Consumer Confidence Continues Decline
Naturally, with housing still under pressure and gasoline and food prices pressuring household budgets, we should have expected Consumer Confidence to show further deterioration. The Conference Board's confidence index declined more than forecast to 57.2, the lowest level since October 1992.
Two other readings from the survey to be concerned with:
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Consumers' inflation expectations are now at an all-time high, the survey showed.
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Consumers claiming business conditions are "bad" rose to 30.6% from 26.5%.
4. Why Rising Oil Prices Are Deflationary
Rising oil and gasoline prices deflationary? It seems counterintuitive. But take a look at what's been going on as oil prices have increased:
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Americans drove 11 billion fewer miles this past March compared to a
year ago, a 4.3% decline -
Mastercard (MA) says gasoline sales were down 7% year-over-year last week
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For the first four months of the year, while driving less remember,
Americans spent almost double the dollar amount on gas that they did
over the same period five years ago.
That dollar amount comes directly out of consumer discretionary spending. The irony of rising gasoline prices is that Americans will be forced to re-prioritize and readjust what are deemed "necessities." My contention is that these will prove to be longer-lasting reprioritizations. As people get used to "doing more with less" they may come face-to-face with former spending patterns that now seem trivial. For more, see today's Number 5...
5. Buying Time... Literally
Tangentially related to this is a fascinating article that appeared in the New York Times on Sunday, "A Superhighway to Bliss." The article is about a neuroscientist, Dr. Jill Bolte Taylor, working at Harvard's brain research center who experienced a stroke in 1996.
The results of the stroke were that her left-brain activities were suppressed; her perceptions changed. The left-side of the brain is the source of ego, analysis, judgment and context, or as the Times put it, "the incessant chatter" that normally fills our mind; everyday worries.
Dr. Taylor has just published a book about her experiences, "My Stroke of Insight," and believes people can learn from her experience to live a more peaceful, spiritual life by sidestepping their left brain.
Now, the Times article observes that Dr. Taylor's message "resonates strongly today," but without going into why it resonates strongly. I believe that resonance is bound up in the clutter and empty accumulation that has been amassed over a two-decades' long credit expansion.
Dr. Taylor says she is now committed to "making time for passions — physical and visual — that she believes exercise her right brain, including water-skiing, guitar playing and stained-glass making." The trade-off for those pursuits is economic on its face for most of us; making time involves, literally, purchasing it. Buying time. Over the next decade it will be interesting to see what we collectively "sell" to increase our ability to buy time.
See Dr. Taylor speaking about her experiences here, via the TED website:
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Link is http://tonto.eia.doe.gov/dnav/pet/hist/mcrfpus1M.htm
So, the US population grows by roughly 75 million in 22 years, while US oil production shrinks by almost half.
Can you say... "National Emergency"?
We need to open massive areas for domestic drilling immediately. And I say that as someone who hates US oil companies. We need to grant waivers to build massive new refining capacity.
But more than anything else, we need a national leader who can summarize the dangers of putting food in your gas tank while outlawing energy production. We need someone to explain to Americans why food and energy prices are simultaneously skyrocketing. We need someone who will articulate their concerns and answer their fears.
We need someone who could declare a National Emergency and announce measures designed to create new jobs employing many Americans in the energy and food production industries. We need someone to explain to us how we can lower food and energy prices while putting lots and lots of Americans into new, technical, skilled job openings.
Someone like, I dunno, a central figure who could rally the nation by speaking directly to them on prime-time TV. Someone that serves as the de facto "leader" or "head of state".
Do we have anyone like that?
Well, let's assume we did. One final thing we need this magic person to do:
We need him/her to explain to us how this IMPROVES our long-term national security by taking economic power OUT of the hands of places like Iran, Russia, Saudi Arabia, Venezuala, etc.
See, because those places are run by corrupt dictators who are extremely unfriendly to us. Note the startling correlation here:
http://www.powerlineblog.com/OilChart9.php
Because, going green is all cool and stuff, but you can't turn the fricking Titanic on a dime. No matter how many concerts you throw, Oscars you award or Third World children you starve.
A couple of things to add regarding new home sales data:
1) The 3.3% increase is still smaller than the data sample's margin for error of +/- 11.7%. That basically means they couldn't tell what sales actually did (improve or decline) because the change is smaller than the error margin.
http://www.census.gov/const/newressales.xls
2) There is nothing in the data that speaks to cancellations. Census admits they don't track cancellations on new home sales.
http://www.census.gov/const/www/salescancellations.html
So good news? Not so much
We need to not only stop putting food into our gas tanks, but to stop putting fuel into our food. Instead of drilling for 6 months' worth of oil in Alaska (which won't be seen for 6 years), perhaps we should be eliminating the regulations against local value-added foods: let grandma sell her cookies and jams again without having to get a license. Let people buy milk from the small farmers they know, and build more indoor farmers' markets instead of highways to nowhere for transportation that doesn't have fuel.
Most of the school buses are sitting around for the next 3 months, let's rent them to local companies to pick up their employees (for a rider fee?).
It ain't exactly rocket science, people. Move like you've got a purpose.
We're not producing. In 22 years, our domestic oil production has been cut almost in half, while our population grew by over 20%.
The only thing that will save us is drilling now, everywhere. Alaska, off-shore, the Rockies, the Dakotas... Drilling everywhere is the only answer.
It is meaningless to say that oil is not produced until years after permission to drill is granted. That just means we need to start granting permission sooner.
We're not producing. All the vacuum compressors attached to all the back ends of all the cows in the world isn't going to supply us with the energy we need.
If employers contracted those services, it would be less fuel than all of the cars that are currently driving to work to make money to buy cars to drive to work.
As for drilling everywhere to 'save us': Who said I wanted to 'save' the current system, anwyay?
"Dyin' ain't much of a livin', boy."
If the current system is simply bleeding the planet and the future dry, why speed that up? If you are trying to survive with limited resources, you learn to ration them out AND work to find more resources, you don't spend your resources building walls around limited resources and then proceed to consume everything you have in one final frenzy.
The US is a free-market based democracy. Our current food-and-energy crisis is the result of too much centralized government planning and too little free-market capitalism.
Do you seriously expect our countries school districts, who are run by citizens concerned with educating our children, to magically step into a part-time food distribution scheme and do it effectively?
How much do you know and understand about school district management? How often do school districts get sued over buses and transportation issues? How much more wear and tear will your proposal inflict on an aging fleet that is barely able to function as it is?
How many more bureaucrats will be necessary to manage a school bus contracting/management system? How much more insurance? How often do bureaucracies outperform private industry?
The number of issues raised by your "solution" would dwarf the current crisis.
If you "don't want to save the current system", you don't need to be involved with it. Your ideas are counterproductive, fantasy-based and impossible to implement.
We tried social engineering and it failed miserably. People are DYING because we are putting corn in our tanks. The only solution is free-market capitalism.
Or we can run in circles in the street and shout "The sky is falling".
it is interesting that you would 'hate' oil companies, who i'm sure have never done anything to you - you are free to purchase their products or refuse to purchase them - but at the same time you're clamoring for a strong leader who will hopefully be able to 'explain everything'.
a strong political leaders is unfortunately far more likely exercise force than an oil company - which you seem to find a-ok, since you even want a 'national emergency' declared.
i once lived in a country that had a 'state of emergency' declared, giving the government and the police nearly unlimited power. i wouldn't wish for anyone to have to live through this.
i'd rather take my chances with peaceful voluntary trade, which is what the oil companies offer.
government intervention ALWAYS ends up delivering unintended consequences. the less the government meddles, the better - it should be obvious that the things that exercise people so much these days, i.e. rising energy and food prices, are the direct result of government meddling all over the world (from massive monetary inflation to subsidies and now even export bans). and yet, somehow people still believe that even more government meddling can deliver them from this unhappy outcome.
"Now that petroleum products are becoming too expensive..."
Oil is so expensive because our government WON'T LET US DRILL. US oil production dropped by almost HALF over the last 22 years. Meanwhile, our population grew by 20-30%. It's simple math.
In 1986, when we saw our last oil production peak (at levels almost twice what we produce today), we were a net importer. We're not a net importer any more. We passed that point about a decade ago.
Now we're an "annoying junkie". We are forced to go whining, hat in hand, to people who hate us, so we can feed that dragon every day. Nobody likes a junkie.
So what does "the Man" do? He does the same thing every bully in a captured market does- he make the marks BLEED. Chavez, Putin and the sheiks are swimming in money. And laughing at us.
They don't give a cr@p about global warming, polar bears or whales. But they almost wet themselves laughing at how we care about that stuff. And BONUS! The Yankee dogs are willing to destroy their nation's economy to save the planet! Dictators rule!
We (the USA) have unbelievable amounts of cheap energy, in dozens of states and offshore. We just don't have the national will necessary to do a rational risk assessment. We're spoiled rotten as a nation. We're used to consuming without producing.
Well, that only works for a little while. Then the debit card gets overheated, the checkbook is empty and everything costs too much.
Ever tried to parallel park the Titanic? Alternative energy can work ONLY if it is PHASED in, while current energy needs are SIMULTANEOUSLY being met.
The problem is the sudden stop, vs. the rational balance. We slammed shut our oil drilling, we paid farmers NOT to plant millions of acres and now, a decade or two later, we're getting slammed.
Well, DUH. Now all the environmental geniuses who thought they understood economics just learned about the "bug vs. windshield" theory.
A little knowledge is a very dangerous thing.
as it were, i completely agree with your stance that all drilling restrictions should be removed ASAP.
as it were, i completely agree with your stance that all drilling restrictions should be removed ASAP.
I used to work for a couple. Maybe "dislike" would be more accurate. I said that because I'm not an advocate for oil companies, but rather I'm an advocate for the US. I want the US oil industry to expand operations to previous levels, domestically. We, as a country, need them to help us to become more energy-independent, ASAP.
And what we're doing now is not only wrong, it's a disaster that's happening in REAL TIME, not in future projections over years or decades. People are hurting NOW. Our country is hurting NOW.
This is my current PowerPoint slide:
Drill NOW.
Plant NOW.
More JOBS.
Lower PRICES.
More SECURITY.
(Picture of penguin on a rig, w/hard hat and gloves, guiding drilling pipe into the hole. Polar bear sitting in crane operator chair, w/cigar hanging out of mouth, wearing USA T-shirt, feeding pipe to the penguin.)
I want less government intervention. I want to relax government restrictions and give more economic power to the people.
And by "the people", I'm referring to average American citizens who would be paying less for energy and food, while at the same time working more, at high-paying technical jobs.
Guns and police have nothing to do with this discussion and frankly, I am insulted by your inclusion of them.
I am an average Joe supporting a family on an income that has never exceeded 5 figures, and I can feed and house my family because I do not own a house I can't afford, drive a car I can't afford, or engage in any other economic activity I can't afford. But we're not missing meals or mortgage payments, because I haven't allowed my wants to exceed my ability to pay for them.
By the way, a great number of drivers throughout the world have been paying a lot more than we for gasoline for a very long time. The answer to this is NOT simply to drill for more oil.
We may debate why that occurs. Is it defensive emotion over the gasoline lifestyle ? Is it nativism, or xenophobia ? Or something else ?
Too many simple-minded, short-sighted people bought into the idea that, in order to innovate, we must shut down what currently supplies us.
As a result, US oil production has plummeted at a rate that threatens to bankrupt most independent American truckers.
Let me repeat this: US oil PRODUCTION is almost HALF of what it was 22 years ago. US oil DEMAND is almost TWICE what it was 22 years ago.
Change is fine, but change of this nature must be MANAGED PROPERLY. Shutting down an industry is not proper management.
I'm defining an issue that requires immediate attention, and you are throwing a worthless ANWR statistic at me.
American oil is in the Rockies, the Dakotas, Alaska and offshore of two dozen states. It is everywhere. The problem is, nobody can get it.
If, by shutting down the US oil industry at a time when US oil demand is at an all-time high, resulting in food/energy price spikes that are literally starving children to death, then I agree.
A situation like that certainly requires "adaptation and adjustment".
As Todd Harrison recently pointed out, the people of Haiti have defined this period of "adaptation and adjustment" as "living on meals made from dirt".
So, how many starved children are considered normal for a typical period of "adaptation and adjustment"? I lost my 21st Century Moral Relativism textbook a few years back.
"those places are run by corrupt dictators who are extremely unfriendly to us"
If you ever find your lost "21st Century Moral Relativism textbook" maybe you could look up the moral difference between corrupt dictators who are unfriendly to us vs. the corrupt dictators that are friendly to us.
My wife is the local president of the school board. My brother is a school bus maintenance supervisor and driver in another state. My father was school board president when I was in school. My sister-in-law is a school principal. The conversations are a little more detailed than you are going to hear on Rush Limbaugh or Fox News.
P.S. My kids are schooled at home through virtual school. Ironic, isn't it?
First, let's assume that the school bus idea really is "impossible to implement". Fine. Let's also assume that government involvement is a bad idea at the implementation point. Granted.
Then what do you have for a suggestion that will reduce consumption?
Nothing. You seem to think the ONLY answer is to drill a well and run the pipe directly to YOUR car. Good luck with that.
OTOH, corporations could set up local pools where they buy buses, set schedules, and shift employees according to real needs. Those same companies could also organize pools of workers that use each others conference rooms to minimize the distances traveled to their jobs. Another thing companies can do is start cooperating to exchange workers who do similar jobs on generic tasks so that people work closer to home or at home.
None of these requires government intervention, which, since you don't work for the government, you won't be doing anything to improve their quality. If you don't believe in government, it will never work for you. It does, however, SOMETIMES work for others (We didn't get to the moon by 'competing with the Russians', but by cooperating among ourselves under government coordination.).
Unfortunately, the people who are trying to use government for good things today are inept, and the ones that COULD change it for the better instead use it to pad their pockets in the confusion. Meanwhile, the most skilled and experienced among us use the power of the dollar to buy the corrupt government employees (or campaigns) and thwart the efforts of those that are honest.
It's time to change our thinking, starting with people who aren't actually TRYING to change, but instead, spend enormous amounts of money and time to prop up a shaky status quo(Can you say "Hybrid cars"?). Transportation is a mess, and the automobile is the heart of that mess, and it is intentionally messy, thanks to the profits made in highway construction, real estate speculation, auto advertising, and oil wars.
Imagine replacing every seat in every school bus every year because they're either ripped to shreds from crates and wire or hopelessly contaminated with rotted eggs, rotten vegetables, bugs, mud and several different kinds of small animal waste.
Are you for real?
Imagine massive decon, massive wastewater treament, massive repainting, replacing brakes/transmissions/tires twice as often, yada yada yada.
Imagine massive lawsuit warnings (in capital red letters) from your insurance carrier about the hazards of transporting small children, raw farm produce and livestock in the same shipping container.
I'm an engineer from a small farm town who managed maintenance and environmental depts for chemical plants/oil companies.
Your plan was dead before you thought of it. Sorry, but I can't sugarcoat it.
Aren't you supposed to be some kind of engineer? How could you not know that?
Conservationists did not cause any decrease in production; that was caused by wells playing out and no longer producing oil. Conservationists did not prevent every possible well from being drilled, only some of them. Wells are also capped when the cost to produce a barrel falls below current price, although I imagine there are no such wells right now.
I'd love to see more exploration of domestic sources. I'd love to see use of nuclear power. However, right now we are at war, and oil money pays most of the bills for the Islamic terrorists, both Sunni & Shia. The only way we're getting the price of oil down quickly is a massive effort to conserve. Other stuff might work long term, and we need to be doing it, but in order to stop giving money to people who intend to kill us, we should have started a massive effort to use less oil on Sept. 12th, 2001. Yes - even if that caused a slowndown in economic growth. Yes - even if it required more government regulation and / or higher taxes. Yes - even if it meant you couldn't buy an 6,000 pound V-8 SUV and use it for everyday commuting.
What part of "We're at war and the enemy benefits directly from higher oil prices" is debatable?
We let the conservationists set energy policy and they have ruined us.
I love the way people throw in a meaningless statistic about ANWR. Cheap US oil is sitting idle, ready for extraction in a dozen states and offshore another dozen.
What part of "We're past the point of arguing conservation vs. exploration and we're now to the point where we must do both or we will not survive" is debatable?
