To those of us who started writing about economics on the web, Barry Rithotlz is like a blog God father. His blog the Big Picture was one of the first economics blogs I found and is one I still read regularly. He inspired many of us to start writing ourselves.
Thankfully, Barry is also a deeply irreverent voice challenging standard assumptions about practically everything. However, his arguments are not crouched in ignorance; they are in fact some of the best researched and documented columns in any medium. Several days ago he published an article titled Pervasive Pollyannas of Prosperity where he made the following points:
We have heard longstanding charges of liberal media bias, going all the way back to Spiro Agnew's Nattering Nabobs of Negativism (September 11, 1970). Whatever validity that Trojan horse might have ever had has now jumped the shark. Mass Media is owned by large corporate interests (Disney, Viacom, News Corp, Time Warner, etc.). If anything, the disconnect between reality and the "Pervasive Pollyannas of Prosperity" has rendered moot William Safire's catchphrase.
Indeed, the bias is precisely the other way -- between reality and ideological absurdity.
Its the Lite Beer marketing syndrome: If your product is pisswater, and fattening to boot, you never admit that in your advertising. Instead, you frame the debate as whether it "tastes great or is less filling." Its jiu jitsu marketing, turning your liability into an advantage. The misdirection is often effective.
How absurd has the Panglossian cheerleading become? On my pal Larry Kudlow's show last night, several of Candide's descendants talked about how great stocks are if you hold them for 30 years. That's right, the holding period for equities according to this crowd is three decades. Of course, this means every pullback is a buying opportunity. Words such as these can only be spoken by someone who has never worked on a trading desk or managed assets professionally -- or if they did, they lost most of their clients' money.
Rather than address why the public is so unhappy, the triple Ps toss charges of bias. Ignore the worst monthly Auto Sales since 1992, ignore the latest signs of consumer distress (Starbucks closing 500 stores). And when that stops working, PPP starts discussing the long run, ignoring the trading wisdom of Keynes. Its yet more evidence of the pollution of economics with partisan politics. Fortunately for most of the Pervasive Pollyannas of Prosperity, they don't have to live off their market calls. Those who invest based on their "Never say recession" worldview best have another source of income. Fortunately, most of the public isn't so easily misled.
This is something that has irritated me for some time -- the cheerleading at the expense of factual analysis. I live in Houston, Texas where all we have on the AM dial is right wing radio. From 6 AM to midnight, we are saturated with the likes of Hannity, Rush, Gallagher and their ilk. To hear them talk, you'd think we're just going through a minor correction which the "liberal media" is blowing completely out of proportion (you can also read such garbage from the likes of Captain Ed, Red State and Newsbusters.) If we only continued to think happy thoughts and put a super-positive spin on everything all would be well.
This is a pure Orwellian fantasy of the highest order. The underlying facts of the current economy are terrible; as I will outline below we've got serious problems that can't be spun away with "happy thoughts". But that doesn't stop the right wing idiots from continuing to push their "liberal media is talking down a great economy" line of attack. So, the next time you hear a talking head say, "all we need is happier reporting" respond with observations of facts presented below and see what they say.
I'm going to base this analysis on a document from the most liberal group ever imagined. This group is so liberal they make the phrase "liberal Democrat" look like a member of the John Birch Society. This group is often the target of right wing attacks because of their liberal nature. In fact, this group is politically to the left of th ACLU and anybody who attended the Woodstock summer of love festival. So -- who is this group? the Federal Reserve. About every month and a half, they release a document called the Beige Book. This book is filled with Democratic party talking points. There is not one right wing point to balance out the hardened leftist communist, defeatist rhetoric contained therein. It is a disgusting document that is filled with anti-American bile. Here is the main hateful paragraph of their latest release.
Reports from the Federal Reserve Districts suggest that economic activity remained generally weak in late April and May. Three Districts described economic activity as softer, weaker, or lower, with an additional four Districts reporting slower, sluggish, or modest economic growth. The remaining five Districts of Philadelphia, Cleveland, Atlanta, St. Louis, and San Francisco described activity as stable or little changed in recent weeks.
Consumer spending slowed since the last report as incomes were pinched by rising energy and food prices. Higher energy prices also appeared to damp domestic tourism. Reports on nonfinancial services varied across Districts and industries. Manufacturing activity was generally soft in recent weeks, with weak demand for housing-related and some other products but with increasing demand for exports. Residential real estate markets remained weak across most Districts. Commercial real estate conditions varied across Districts, as did reports on nonresidential construction activity. Lending activity also varied across Districts and market segments, though tighter credit standards were reported for most loan categories. Districts reporting on the agriculture and energy sectors noted improved crop conditions and increased drilling and extraction activity.
Reports of higher input costs were widespread. Manufacturing contacts in several Districts noted some ability to pass along higher costs to customers. Retailers reported mixed results with respect to raising final goods prices. In most Districts, wage pressures were reported as moderate or limited for all but a few skilled-labor positions, as hiring activity remained spotty in most Districts.
Clear, this group of people hate America.
I'm going to turn off the sarcasm and return to bland econ mode now. Let's take a look at what the Federal Reserve is talking about.
Consumer spending slowed since the last report as incomes were pinched by rising energy and food prices. Higher energy prices also appeared to damp domestic tourism.
Reports of higher input costs were widespread. Manufacturing contacts in several Districts noted some ability to pass along higher costs to customers. Retailers reported mixed results with respect to raising final goods prices.
Oil is a big problem right now. My wife and I had a party last night and oil/gas prices were a big topic of conversation. The general consensus was if gas prices remain at current levels we're going to see profound changes in US behavior. Here is a long-term chart of oil prices:
Prices have increased from $40/bbl at the beginning of 2004 to to over $140/bbl today. That's a 250% increase of the basic commodity that powers most of out transportation. That's a profound increase that is bound to slip into every single nook and cranny of the economy in one way or the other. In short -- this is a big issue, that is not going away any time soon.
Consumer spending slowed since the last report as incomes were pinched by rising energy and food prices.
"Bonddad -- look at that increase! Things are turning around!" Sure they are. And how often will the federal government be able to mail out stimulus checks to keep people spending? Take a look at personal income:
We had one of the biggest bumps in the last 20 years thanks to the federal government doling out money. What do you think is going to happen in the next few months after those checks stop coming out from Washington? Considering year over year employment growth has been dropping for several years:
And the unemployment rate is increasing (wasn't this number suppose to magically come down because of the increase in teen unemployment in the last number, Captain Ed?):
I wouldn't be expecting a wage increase anytime soon.
Reports on nonfinancial services varied across Districts and industries.
The ISM non-manufacturing index has been creeping downward for the last 3 years. It is currently below 50 indicating a contraction and has been reading at that level for 4 of the last 6 months. This indicates that things in the non-manufacturing sector are not going well.
Manufacturing activity was generally soft in recent weeks, with weak demand for housing-related and some other products but with increasing demand for exports.
The year-over-year industrial production number has been decreasing for the last 6 months,
Capacity utilization has been decreasing,
And the Empire (NY Fed) and Philly Fed indexes have been in poor shape for the last 5 months. The only good news is:
The ISM manufacturing indexes recent read about 50. But considering where this number has been over the last 5 months, we'll need at least one more month of positive news before we can say things are good -- and then only if we get confirmation from one of the other numbers listed above. The overwhelming news from manufacturing is negative right now -- at least according to these really stubborn things called facts and statistics.
Residential real estate markets remained weak across most Districts
Here's the short lesson in the US' current real estate market.
Existing home inventory is at a mammoth level in both real terms
And month's of available supply.
As a result,
Home prices in 20 U.S. metropolitan areas fell in April by the most on record, signaling the housing recession is far from over, a private survey showed today.
The S&P/Case-Shiller home-price index dropped 15.3 percent from a year earlier, less than forecast, after a 14.3 percent decline in March. The group began keeping year-over-year records in 2001. A separate report showed consumer confidence slumped this month to the lowest level in 16 years.
Mortgage defaults and foreclosures are adding to the glut of properties on the market, while stricter loan rules are making it more difficult for prospective buyers to get financing. The prolonged real-estate slump, along with higher fuel prices and a shrinking job market, is taking a toll on consumers and the economy.
Commercial real estate conditions varied across Districts, as did reports on nonresidential construction activity. Lending activity also varied across Districts and market segments, though tighter credit standards were reported for most loan categories.
Banking is doing so well that:
Securities firms and banks have reported more than $400 billion of writedowns and credit losses, and raised about $322 billion to replenish reserves since the start of last year, data compiled by Bloomberg show. Anshu Jain, head of global markets at Deutsche Bank AG, said this week that the contagion sparked by the U.S. subprime mortgage collapse has erased more than a fifth of the banking industry's value and is ``by no means over.''
And another bastion of liberal media bias, a group that hates America and in unpatriotic has said the following about the US banking system:
# INDUSTRY EARNINGS DECLINE 46 PERCENT FROM YEAR-EARLIER LEVEL
# LOSS PROVISIONS ABSORB A HIGHER SHARE OF REVENUE
# TROUBLED LOANS ACCUMULATE IN REAL ESTATE PORTFOLIOS
# LENDING GROWTH SLOWS
# FOURTH QUARTER 2007 EARNINGS ARE REVISED BELOW $1 BILLION
.....
Deteriorating asset quality concentrated in real estate loan portfolios continued to take a toll on the earnings performance of many insured institutions in first quarter 2008. Higher loss provisions were the primary reason that industry earnings for the quarter totaled only $19.3 billion, compared to $35.6 billion a year earlier. FDIC-insured commercial banks and savings institutions set aside $37.1 billion in loan-loss provisions during the quarter, more than four times the $9.2 billion set aside in first quarter 2007. Provisions absorbed 24 percent of the industry's net operating revenue (net interest income plus total noninterest income) in the quarter, compared to only 6 percent in the first quarter of 2007. The average return on assets (ROA) was 0.59 percent, falling from 1.20 percent in first quarter 2007. The first quarter's ROA is the second-lowest since fourth quarter 1991. The downward trend in profitability was relatively broad: slightly more than half of all insured institutions (50.4 percent) reported year-over-year declines in quarterly earnings. However, the brunt of the earnings decline was borne by larger institutions. Almost two out of every three institutions with more than $10 billion in assets (62.4 percent) reported lower net income in the first quarter, and four large institutions accounted for more than half of the $16.3-billion decline in industry net income.
That liberal, America hating institution is the FDIC from their latest Quarterly banking Profile
So, to Larry Kudlow, Captain Ed, Newsbusters, Donald Luskin and anyone else who is telling us the economy is just fine and dandy, please provide facts to refute everything mentioned above. Please provide facts that demonstrate:
1.) The consumer is in great shape
2.) Manufacturing is going gangbusters,
3.) Real Estate is just about to bottom,
4.) The financial sector is about to turn around
When you can write a fact based paper that demonstrates the above mentioned points, please do so. However, you opinion that the liberal media is talking down a great economy is, well, garbage. I am calling it such and am awaiting your fact-based response to the points made by the Federal Reserve and the FDIC.