Sunday, January 16, 2011

Selected Macroeconomic Highlights from the Week Ending January 15, 2011

As we begin our third week into 2011 another year seems to be flying by. And this macro patchwork economic state continues its disequilibrium.


  • DOW was up 0.96% to close at 11787.
  • S&P 500 Index gained 1.71% to close at 1293.
  • NASDAQ climbed 1.93% to close at 2755.
  • Euro gained 425 points against the dollar.
  • Crude oil moved $3 per barrel higher.
  • Comex Gold declined by $9 per ounce.
  • The Goldman Sachs Commodity Index rose more than 20 points.
  • Fed Chairman Ben Bernanke stated on CNBC that risks are more balanced now, as opposed to the downside a few months ago, and that 3-4% growth in 2011 seems reasonable.
  • Retail sales for 2010 were up nearly 7 percent, the largest annual increase in more than a decade.
  • 2010 culminated in the best holiday shopping season in four years for retailers.
  • Industrial production increased 0.8 percent in December after having risen 0.3 percent in November.
  • The Association of American Railroads reports carload traffic in December 2010 was up 9.4% compared to December 2009, and traffic is also above December 2008. Intermodal traffic (using intermodal or shipping containers) is up 13.3% over December 2009 and up over December 2008.
  • The Labor Department reported its Consumer Price Index rose 0.5 percent in December, its largest increase in 18 months mostly due to higher gasoline prices.
  • Core inflation was up 0.1 percent last month.

(T)o contemplate the future, I start from the fact that we are in the midst of a balance sheet adjustment process after the financial bubble burst, at a time when the population is ageing. This is not the simple balance sheet adjustment of the past, which took place with a growing young population. This is an acute balance sheet adjustment when the composition of the nation’s population is rapidly tilting toward the old. This is unprecedented in our modern history of economic growth.
---Kiyohiko G Nishimura [pdf]

The portfolio of the F.H.A., which encourages banks to make low-cost loans to working-class families by insuring the lenders against loss, increased sharply in the early years of the bust. The agency served, in essence, as the lender of last resort as private mortgages became more difficult to get. F.H.A. default rates are now falling, but the absolute numbers are rising as the loan portfolio continues to expand to nearly seven million. More than half a million F.H.A. loans are in default — a number that analysts think will swell if the real estate market turns down again or if the job market does not recover.

Thirty-nine percent of treasurers and financial professionals said their companies will either pare or pull all cash from money funds because of the possibility of a NAV falling below $1, the Association for Financial Professionals said on Tuesday.

(U)ltimately, as the International Energy Agency has warned, excessively high oil prices become damaging for the world economic recovery.
---The Telegraph

Home prices fell for the 53rd consecutive month in November, taking the decline past that of the Great Depression for the first time in the prolonged housing slump, according to Zillow. Home prices have fallen 26 percent since their peak in 2006...

Since reaching a one-year high on June 7 of last year, the dollar has fallen about 6.2 percent against a trade-weighted basket of major currencies, making imported goods more expensive.

Holdings of foreclosed residential real estate at the four biggest banks—BofA, Citigroup, J.P. Morgan Chase and Wells Fargo—grew 33% in the first nine months of the year to $6.8 billion. The swelling size of foreclosed-property holdings is even more pronounced at Fannie Mae and Freddie Mac. At the end of the third quarter, the mortgage giants held $24.4 billion of foreclosed property, double the amount at the end of 2009.

Japanese companies are grappling with a basket of pressures on their bottom lines, including a persistently strong yen and rising raw materials prices. The expiration of government subsidies for consumers has hurt spending at home amid uncertainties about the global economy. ...Overseas orders, an indicator of prospects for Japanese exports, fell 17.8 percent, the government said.---AP

(T)here are developed country commodity exporters such as Canada, Australia and New Zealand, whose currencies are likely to continue to appreciate as long as emerging markets continue to thrive, even with their policy inconsistencies. All in all, 2011 is shaping up as a race to the bottom for currency values.
---Ken Rogoff

The top five U.S. commercial and investment banks — Bank of America, J.P. Morgan Chase, Citigroup, Wells Fargo and Goldman Sachs — have emerged from the financial crisis larger than ever. As of the third quarter of 2010, they had a total of $8.6 trillion in assets, according to data provider Capital IQ. That’s 13.3% of all U.S. financial firms’ assets, up from 11.8% three years earlier, when the financial crisis hit.

source: calculated risk
So these three measures: core CPI, median CPI and trimmed-mean CPI, all increased less than 1% over the last 12 months. This graph shows these three measures of inflation on a year-over-year basis. They all show that inflation has been falling, and that measured inflation is up less than 1% year-over-year.

(T)he pass-through process to consumers is a long haul. Overall, the costs of materials bought by food manufacturers rose 6.5% during all of 2010, according to Thursday’s producer price report. But the wholesale prices for consumer-food items increased just 3.5% – indicating a profit squeeze.

The National Inflation Association believes that the United States has a college education bubble that is set to burst beginning in mid-2011.
---National Inflation Association

This next quote is from last month, but recommended:

The global economy as I see it is in a period between two crises.
---David Einhorn

(This 22-minute Charlie Rose interview of David Einhorn is from Dec. 6th here. If you don't have time for the whole thing I encourage you to watch the first five minutes in which David tells why he thinks that we are now in a quiet period between two economic crises and the last two minutes in which he describes his amazement with how important it is to our Federal Reserve to keep the stock market at a high level. (h/t Barry Ritholtz)