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Email UpdatesPIMCO’s chief Bill Gross puts out a regular letter in which he shares his investment advice with the public. 
Invoking the memory of Will Rogers, a Depression-era comic, Gross describes the recent upheaval in the financial markets as a period where investors needed to concern themselves with the return of their money, rather than return on their money. After sharing an amusing (if not somewhat disturbing) story of having his wife emptying their bank accounts at the height of the crisis, Gross argues that it is time for investors to concern themselves with the problem of earning some return again. Read More
Posts related to ‘Economy’
Pimco’s Gross Says Buy Utilities
Jobless Data Trying to Hang in There
The Labor Department has just released its figure for weekly jobless claims. The figure came in at 505,000 in the last week, exactly in-line with the Bloomberg consensus data. This is also exactly the same as the revised figure from a week ago, which was revised from 502,000. The four-week moving average fell by a figure of 6,500 to 514,000, which is the lowest figure in roughly a year. The rest of the data is still less-bad, but far from good.
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US Recovery Expected To Outpace Europe
The OECD expects the economic recovery in the US to be significantly better than in Europe. In its new Economic Outlook survey the agency says US gross domestic product (GDP) is expected to grow by 2.5% in 2010 and a further 2.8% in 2011. But, “The Euro area economy is projected to grow next year by 0.9% and by 1.7% in 2011.”
China, as might be expected, will pace the improvement in the global economy. Read More
Obama Warns About “Double Dip” Recession
The President is supposed to talk about how much the economy is improving, not how bad it could be. Mr. Obama broke with the approach by saying that “It is important though to recognise if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the US economy in a double-dip recession,” according to the FT.
What the President did not say is that the national debt is not the only threat to the economy. Read More
One Million Americans Face Loss Of Jobless Benefits In January
The National Employment Law Project says that the public’s perception of what will happen to insurance benefits for the unemployed early next year is flawed. Most press reports on Congressional action on the matter say that one million people have had their benefits extended well into 2010. That apparently is not so.
The NELP released a new analysis which finds that one million workers will become ineligible for unemployment benefits in January 2010 unless Congress reauthorizes the American Recovery and Reinvestment Act’s unemployment insurance programs by the end of December. Read More
Risks in Geithner’s Call For More Lending
U.S. Treasury Secretary Timothy Geithner spoke this morning and has effectively called for banks which have received government bail-out funds to boost their lending activities. Geithner noted that a lack of lending and strict limits to credit might act as a buffer against a continued recovery.
The Obama administration is trying to come up with new ways to turn the credit back on for small businesses. It is no wonder that Goldman Sachs Group (NYSE: GS) launched its initiative this morning. The firm’s public relations and financial relations campaign is a $500 million 10,000 Small Businesses initiative aimed at fostering small business growth and job-creation for up to 10,000 small businesses. The company plans to offer business education, mentorships, business networks, and capital.
Geithner noted that banks need “to be working with us, not against recovery.” He also noted that it was taxpayers saving the banks rather than their great intelligence and efforts that has led to the return of bank earnings, and he said banks have some responsibility and are obliged to assist in the recovery of communities. But, Geithner also defended banking sector earnings. It has been noted how lending standards have tightened month after month. Where this gets interesting though is in evaluating credit risks and interpolating that data for risks ahead.
Should McDonald’s And Wal-Mart Shelter The Mentally Ill And The Homeless?
It could be the economy or the fact that spending time in McDonald’s (NYSE:MCD), Target (NYSE:TGT), Starbucks (NASDAQ:SBUX), and Wal-Mart (NYSE:WMT) is more pleasant than it used to be. All of these retailers certainly have clean and well-heated stores.
There appears to be a rise in the number of homeless people and people who are mentally ill in the aisles and at the tables of America’s largest retailers, fast food coffee chains and restaurants. These establishments are often crowded enough or are in buildings that cover enough square feet so that a person could be lost, or to some extent hide in plain sight.
Unemployed, But Still A Homeowner
There were two speeches by senior members of the US government about unemployment yesterday. The one that received the most attention was Federal Reserve chief Ben Bernanke’s talk at the Economic Club of New York. Investors and economists had anticipated the event for weeks. They shouldn’t have bothered. Bernanke said that the economy would have a positive limp next year, but that there is no reason to think that the recovery will have enough power to rebuild the jobs market. In his words, “The best thing we can say about the labor market right now is that it may be getting worse more slowly.” That may not last for much longer if improved access to credit, an increase in exports, and a miraculous reversal in consumer spending patterns do not all happen soon. Bernanke has to be a cheerleader, at least to the extent that it will not make him look foolish. His comments about the modesty of the recovery gave the sense that he was writing his own epitaph. The Fed and the government stimulus package have not been able to offset the severity of the downturn. Read More
Unemployment: Then (1982) And Now
Fed Chairman Ben Bernanke commented today that he was concerned that the recovery will not be strong enough to support job growth next year.
While the current recession in the United States has yet to be declared over by the Nation Bureau of Economic Research, GDP growth resumed in the third quarter of this year. Unfortunately, it may be some time before that growth translates to recovery in the job market. The headline unemployment rate broke into the double digits in October, reaching 10.2%. Since WWII, the only recession that generated double-digit unemployment was the so-called Volker Recession, which officially lasted from December of 1980 to November of 1982. The chart below shows the unemployment rate for 48 months from the start of that recession and the numbers so far for the present downturn.”
In the current recession, which officially began in December of 2007, employment reached the double digits in the 23rd month. Similarly, in the Volker Recession unemployment his 10.1% in the 22nd month of the recession. The Volker Recession was declared to have ended two months later, and the unemployment rate began its decline two months after that. Unemployment did not reach its pre-recession level until May of 1984, about a year- and-a-half after the recession had come to an end. If we were to use the Volker Recession as a proxy, we would expect unemployment to remain high for years to come. However, the speed with which unemployment reached its current levels give us reason to believe that the employment situation may remain high considerably longer. The chart below shows how high unemployment was during each recession over the month before the recessions officially got under way.
By this measure it is clear that our current recession has been far more jarring than the one in the early 1980’s. While the 1980’s recession cause the result of aggressive tightening on the part of the Federal Reserve, the current one persists despite the central bank’s best efforts. Today, the Federal Reserve approaching the point where it will begin to wind down its market support programs, and Congress so far has not enacted additional fiscal stimulus beyond the $787 billion approved earlier this year. While the unemployment growth may slow shortly after the recession has official come to an end, it has much ground to cover before it reaches its pre-recession level.
Garrett W. McIntyre
Bernanke Predicts 2010
Fed Chairman Ben Bernanke is spoke today in a speech to the Economic Club of New York which gives the bulls and the bears plenty of ammunition to support their ongoing cases.
Bernanke told the audience that the economy will continue to grow in 2010, but he also noted that the underlying economic strength should support the US Dollar. The sad notion here is that Bernanke is effectively talking about a jobless recovery, or at least one where unemployment will remain high.
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Japan GDP Moves Up At 4.8% Annual Rate
By Douglas A. McIntyre
Japan’s GDP rose at an annual rate of 4.8% in the quarter ending September 30th. Most analysts had forecast a figure below 3%. It is not entirely clear how much of the increase is due to government stimulus, and how much is due to “organic” activity including consumer spending and exports. Capital spending did rise 1.6%. Consumer activity was up a tiny 0.7% but most experts believe that this was due to incentive programs to get people to buy cars and appliances.
The Japanese numbers, while good, point to the dilemma of the all the wealthy nations including the U.S., U.K., and many E.U. countries.
24/7 Wall St. TV: China Pushes US To Raise Interest Rates Which Would Undermine Recovery
The Federal Reserve and most economists believe that keeping US interest rates at near zero has been critical to the recovery of the American economy. Even with rates at historically low levels, banks and financial companies have been stingy in their lending practices because of the fear of risk from providing capital to people and businesses whose financial positions have been crippled by the recession.
Fed officials have hinted that the agency may not move rates up at all until 2011 because unemployment and tight credit will only allow a very fragile advance in GDP between now and then.
China would like the US to raise interest rates based on its theory that the low cost of capital is causing massive speculation in equity and commodities markets. China claims that Fed policy will cause bubbles that will burst and cause both another sharp downturn in the global economy and damage to the credit markets. Read More
The Swine Flu Epidemic Fails To Do Economic Damage
Swine flu vaccinations have been slow to get to those who want to be treated. The Centers for Disease Control and Prevention says that about 22 million American have contracted the disease and of those almost 4,000 have died. The number of people who have had to go to hospitals because if the illness is less than 100,000.
It is remarkable that more thsn 7% of Americans have the flu or have had it, and the effects on the medical system and economy have been nonexistent. The death rate from the disease appears to be lower than the seasonal flu. There have been very few reports that companies have had to close large facilities or that earnings may be undermined by the spread of the H1N1 virus. Read More
Government Deficit Expands To $176 Billion In October
According the monthly Treasury report released this afternoon, the Federal Government posted a $176.4 billion deficit in the month of October. Total Government receipts came in at $135 billion. Of that $61.2 billion was attributable to personal income tax, down roughly $25 billion from the same period last year. There were net refunds to companies in October, with corporate income tax coming in at negative $4.5 billion, down from $81 billion in October of 2008.
Government outlays came in at $311.6 billion. About 7.3% of that, or $22.83 billion went to interest on government debt. In October of last year that number was 5.9%. Social Security outlays were $65.2 billion, up slightly from the $59.15 billion posted last October. Military expenditures were almost unchanged year over year, coming in at $67.75 billion. The biggest increase was in the Department of Health and Human Services budget which was up nearly $10 billion from last year and represented nearly 30% of outlays in the month of October. Much of that increase it attributable to rising expenditures on Medicare and Medicaid, which were up roughly $13 billion from October of last year.
Government Outlays and Receipts(Millions of dollars), January 2007 through October 2009
Since September of 2008, the U.S. budget has been consistently in deficit. Recessions typically put unusual strain in the Federal budget. With personal income declining as unemployment rises and corporate profits shrinking, Government tax receipts enter a states of state of decline. Swelling unemployment also drives more people to rely on Government programs to support themselves. This can be seen very clearly in the increased outlays on Medicare and Medicaid highlighted above. Large deficits are acceptable in the short run if Government outlays created conditions in which future tax revenues will be enough to repay debt. If, however, current government outlays are not sufficiently large we may see the percent of the budget that debt payments represent rise indefinitely.
Garrett W. McIntyre
Long-Bond Auction Conundrum
Earlier today came the results from a highly awaited $16 billion 30-Year Treasury bond auction… the famed ‘Long Bond.’ The 30-Year yield went out to buyers at 4.469%, just over 0.04% or 4 basis-points, higher than what the when-issued bill had been trading at. In short, this was not exactly a high-demand auction. The bid-to-cover ratio was 2.26. While not awful, this is far from a successful auction for the long-end of the yield curve.
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U.S. Oil Stockspiles Increase More Than Expected
Today’s EIA Petroleum Status Report for last week shows oil inventories to have grown 1.8 million barrels. Many analysts expected the number to have grown by 1 million barrels. Oil futures were down ahead of the report, largely on the strength of the dollars.
U.S. Oil Stock, January 1st 2009 through November 6th 2009
Weekly U.S Spot Prices, January 1st 2009 through October 30th 2009
Oil prices have been on the rise since October. This price movement have been supported by a number of factors. Perhaps the strongest among them has been the decline in the dollar against the currencies of its major trading partners, as oil is denominated in dollars. Since the beginning of October the dollar has declined over 2% against the Euro, enhancing European demand for oil. Oil prices have also been given a boost by the recent G-20 meeting where economic policy markers from the worlds richest 20 countries indicated they would continue their fiscal and monetary stimulus. Also, the IEA recently revised their projections for global oil demand, citing powerful growth in China.
Garrett W. McIntyre
Jobless Claims Try to Break 500K
The Labor Department has just reported its weekly jobless claims data. The new preliminary report puts last week’s initial jobless claims at 502,000, down 12,000 on an adjusted basis from the week before. Bloomberg had an open estimate of 512,000. This is one of the lowest readings for 2009, but this figure will actually have to get under 400,000 or a tad higher before it starts halting the rise in unemployment. The army of the unemployed is getting smaller on an official basis as it fell an adjusted 139,000 to 5,631,000.
This won’t halt the rise in unemployment from getting higher than 10.2%, but it is at least getting less bad.
JON C. OGG
Applied Materials (AMAT): We Made Money But You’re Fired
Applied Materials (NASDAQ:AMAT) can be added to the long list of American companies that made a profit in the last quarter and then fired a significant part of their workforces. It is a disturbing trend that will make it harder for the US economy to recover.
Applied Materials said it expected its fiscal year sales to be 30% higher. It then let go nearly 1,500 people. Read More
Housing Speculation On The Rise
According to a recent survey conducted by Move.com the some people interested in purchasing real estate as an investment has doubled since March 2009. The results show that this growth has been driven by falling housing prices and increased foreclosures. According to the survey the number of homebuyers that plan to buy an investment property has risen to 12.1%. A significant number of these purchases are happening in the foreclosure market, with 42% of purchases of foreclosed homes being speculative.
Speculative buying in the housing market is an important force in the effort to put a bottom on home prices. However, the number of homes available on the foreclosure market continues to rise. Areas of the country that were the biggest drivers of the housing boom are now seeing record levels of home foreclosures. In September, home foreclosures reached a record level of 8,800, up 90% from a year ago. Without adequate funding, it’s almost certain that the buying power of speculators will be insufficient to sop up the increasing number of foreclosed homes hitting the market.
Even if the number of people investing in real estate continues to rise, their presence in the housing market may cause some bumps as the market begins its recovery. The Move.com survey indicates that close to 60% of speculators expect to buy their foreclosed homes for around 20% below value. If this turns out to be the case, sellers of foreclosed homes will probably in a position to sell as a profit well before other market participants. They are likely to turn over real estate quickly for a rapid return. Depending on how large of a portion of the market speculators represent, their selling may have a depressing effect on the market just as recovery gets underway.
Garrett W. McIntyre
China’s Artificial Recovery
China’s industrial production was up more than 16% in October. Retail sales were up by about the same percentage, oddly enough. No one was shocked that exports fell a sharp 13.8%.
The Chinese recovery is no recovery at all. It is the product of a $585 billion stimulus package for a nation that has a GDP of $4.4 trillion. The US stimulus program, by way of contrast, is $787 billion against a $14. 3 trillion GDP. The totalitarian communist central government can push its investment in the economy quickly. The American democratic system is burdened more substantially with red tape. Read More
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