Archive for May, 2012

• The $2.3 Trillion Gap
  Eddy Elfenbein, May 31st, 2012 at 11:06 am

  Here’s an unusual chart, but I think it explains a lot. This is real GDP divided by a trendline growing at 3.1%. So when the line is rising, the economy is growing faster than 3.1%. Conversely, when the line is dropping, the economy is growing by less than 3.1%.

  

  For a 40-year stretch, from 1966 to 2006, the economy grew at a 3.1% annualized pace and it didn’t stray too far from that trend. The 1981-82 recession was severe, but the Reagan Recovery brought us back into trend.

  The Great Recession, however, is a dramatic departure from the 40-year trend. That’s the key point I think the chart highlights. In the last six years, the economy has exceeded 3.1% growth in just four quarters. If the economy had kept pace with the 3.1% trend, it would be $2.3 trillion larger today in nominal terms.

• Q1 GDP Revised Down
  Eddy Elfenbein, May 31st, 2012 at 9:44 am

  The government revised its estimate for first-quarter GDP growth this morning and it was bad news. Instead of growing by 2.2% as was initially reported one month ago, the government now says that the economy grew by just 1.9% for the first three months of the year.

  This means that the economy is barely above its peak from late 2007. Over the last 17 quarters, the U.S. economy has grown by just 1.24% in real terms.

  The report also showed that after-tax corporate profits dropped for the first time in three years.

  A modest downward revision to consumer spending, which accounts for about 70 percent of economic activity, and stronger import growth also accounted for the weaker first-quarter output. Economists polled by Reuters had expected growth would be revised down to a 1.9 percent pace.

  Business inventories increased $57.7 billion, instead of $69.5 billion, adding only 0.21 percentage point to G.D.P. growth, compared with 0.59 percentage point in the previous estimate.

  While the small inventory buildup held back growth in the January-March quarter, restocking of shelves, retreating gasoline prices and an improving housing market should bolster output in the second quarter.

  I’m not sure why this is, but looking at the rolling six-quarter growth of the economy gives you the clearest appearance of a trend. The six-quarter growth rate has now trended downward for five quarters in a row.

  

  Before the Great Recession, economists spoke of the Great Moderation. This refers to the fact that the booms and busts of the economy from 1982 to 2007 were much smaller than what we saw before.

  But the moderation may still be with us, just at a lower level. The standard deviation of quarterly GDP growth for the last seven quarters is among the lowest ever recorded.

• Morning News: May 31, 2012
  Eddy Elfenbein, May 31st, 2012 at 7:27 am

  Bankia Vortex Risks Dragging Spain to Bailout as Costs Mount

  An ECB Rate Cut: A Matter of When Not If

  Swiss Economic Growth Quickens

  Polish Economic Growth Slowed as Euro Turmoil Hurts Exports

  India Growth Slows to Nine-Year Low as Rupee Drops to Record

  Japan Industrial Output Gains Slow, Stirring Recovery Doubts

  Malaysia Launches $3 Billion IPO with Eye on Poll

  Gold Advances in London as Weaker Dollar Bolsters Demand

  U.S. Steps Up Pressure on Europe to Resolve Euro Crisis

  Microsoft Recruits Designers in Race for Windows Apps

  RIM Shares Trade Lower After CEO’s Warning

  JPMorgan CIO Swaps Pricing Said to Differ From Bank

  Prudential US Acquisition

  Lions Gate Records Surprise Loss on Summit, ‘Hunger Games’ Costs

  Jeff Carter: Repurposing Public Spaces For the Knowledge Economy

  Edward Harrison: What Record Low 10-Year Rates Tell Us About The Toxic Effects Of Permanent Zero

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• 10-Year Yield Hits New Low
  Eddy Elfenbein, May 30th, 2012 at 10:33 am

  The yield on the 10-year Treasury fell to 1.65% today which is another multi-decade low.

  The 10-year TIPs yield is now down to -0.4%. In February 2011, the TIPs yield was +1.4%.

  

• Joey Bank Bombs
  Eddy Elfenbein, May 30th, 2012 at 9:51 am

  Jos. A. Bank Clothiers ($JOSB) just reported horrible earnings for its first quarter. The company earned 53 cents per share which was nine cents worse than expectations. To be fair, the company had told us that this quarter looked weak but we didn’t know exactly how weak until now. Quarterly revenue rose 4.2% to $208.91 million, although comparable stores sales dropped by 1%.

  The stock is getting nicked this morning but this is cause for optimism. JOSB has said that this quarter is off to a good start: “So far the second quarter has started out much better than the first quarter. For May, both our comparable store sales and Direct Marketing sales are up compared to the same period last year, continuing the positive trend established in the last five weeks of the first quarter. However, Father’s Day, the most important selling period of the quarter, is still ahead of us.”

• Morning News: May 30, 2012
  Eddy Elfenbein, May 30th, 2012 at 7:28 am

  Euro-Area Economic Confidence Falls to 2 1/2 Year Low

  Euro Bonds With Strings Are Europe’s Best Way Forward

  Greek Exit From Euro Seen Exposing Deposit-Guaranty Flaws

  Worries About Spain Weigh on Euro Zone

  ECB Rate Cut Hopes Push Euribor To 2-Yr Lows

  India’s Economy Slows, With Global Implications

  Young and Global Need Not Apply in Japan

  Global Carbon Market Value Hits Record $176 Billion

  Challenges Mount for Chinese Makers of Electric Cars

  Dragon Oil Awarded Iraqi Exploration Block

  A Facebook Phone: Ambitious Leap or Fatal Mistake?

  Dunkin’ Brands Looks to Emerging Markets

  Allstate Leads Insurers to Best Start Since 2003 on Storm Costs

  Visa Beats JPMorgan as Cards Wage War on Cash: Riskless Return

  Roger Nusbaum: A Not So Lazy Portfolio

  Pragmatic Capitalism: Housing Recovery: Hope and Reality

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• Home Prices Cheapest in 10 Years
  Eddy Elfenbein, May 29th, 2012 at 9:47 am

  This morning’s Case-Shiller reports that U.S. home prices are the cheapest they’ve been since mid-2002.

  Home prices hit new post-bubble lows in March, according to a report out Tuesday.

  Average home prices were down 2.6% from 12 months earlier, according to the S&P/Case-Shiller home price index of 20 major markets. Home prices have not been this low since mid-2002.

  “While there has been improvement in some regions, housing prices have not turned,” said David Blitzer, spokesman for S&P.

  Although five cities – Atlanta, Chicago, Las Vegas, New York and Portland – saw average home prices hit new lows, that’s an improvement from last month’s report, in which nine cities notched new lows, Blitzer noted.

  Overall, the 20-city composite is down about 35% from its peak in 2006.

  Experts say affordable mortgages, combined with much lower home prices, should help to bolster the housing market.

  “It’s probably the best time to buy a home in decades,” said Pat Newport, an analyst for IHS Global Insight.

  “But the problem is that unless you have good credit, you are probably going to have trouble qualifying for a loan,” he added referring to overly tight lending conditions.

• Chinese Banks and Greek Polls Look to Lift the Market
  Eddy Elfenbein, May 29th, 2012 at 8:55 am

  I hope everyone had a nice long weekend. The stock market looks to open higher today. The good news is that banks in China appear ready to boost lending. Also, the polls in Greece suggest that the conservative parties will do well.

  Also, Joe Banks ($JOSB) said that it will report its first-quarter earnings on Thursday. This will be an interesting report because three months ago, the company reported inline earnings and said that business is on the weak side for Q1.

  The first quarter of 2012 has started out more slowly than we had planned with declines in both comparable store sales and Direct Marketing sales for the first 8 weeks of the quarter. The declines are primarily due to weaker than expected traffic and also due to the warmer winter weather which is resulting in significantly lower sales of outerwear and cold weather merchandise. We are making marketing changes to address the sales trend. We believe that these changes will be effective and appealing to our customers; however we remain cautious about the outcome of the first quarter of 2012.

  The shares dropped from $54.48 before the report to as low as $45.12 last week. Wall Street has trimmed its earnings estimate from 73 cents per share to 62 cents per share.

• Morning News: May 29, 2012
  Eddy Elfenbein, May 29th, 2012 at 7:23 am

  Bankia Tapping Depositors for Bonds Leaves Spain on Bailout Hook

  Greek Euro Exit Aftershocks Risk Reaching China

  Hedge Funds Take Bets Against Core Euro Zone Bonds

  Yen-Yuan Direct Trading To Start June 1

  Taiwan Finance Minister Quits

  World To Gain From Gas Glut If Regulation Right

  Crude Oil Slightly Higher: Iran, Greece Remain In Focus

  $8.5 Billion Deal for Calling Service Presents a Puzzle

  Marubeni of Japan to Buy Gavilon for $3.6 Billion

  RIM Writedown Risked With $1 Billion Inventory

  JPMorgan Dips Into Cookie Jar To Offset “London Whale” Losses

  Repsol Seen Cutting Dividend to Defend Rating After YPF

  Azul’s Neeleman Says Trip Acquisition Equals 4 Years of Growth

  7-Eleven Finds a Niche by Adapting to Indonesian Ways

  Phil Pearlman: On Sendak’s Obituary in The Economist

  Howard Lindzon: Facebook was just a PARTIAL Scam, Venture Capital is ALIVE, and Equities are NOT Dead!

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• Morning News: May 28, 2012
  Eddy Elfenbein, May 28th, 2012 at 7:32 am

  Spain Regional Rescue Risks Tipping Point on Yields

  Spain May Recapitalize Bankia with Government Debt

  Greek Pro-Bailout Parties Gain Amid Euro Collapse Concern

  European Firms Plan for Greek Unrest and Euro Exit

  In Italy, Technology Is Leading to a TV Transformation

  IMF Urges Ukraine To Up Gas Prices

  Bank of Japan Gets Cold Feet After Valentine Surprise

  Report Warns on Africa Jobs Growth

  Lukoil Q1 Net Jumps 8% on Higher Crude Price

  JPMorgan Injects $394 Million in China Unit on Faster Growth

  U.S. Hedge Funds Find Ways to Trade Euro Misery

  How Facebook is Like Prison

  For Tech Start-Ups, New York Has Increasing Allure

  Jeff Miller: Weighing the Week Ahead: Bring on the (Economic) Evidence!

  Epicurean Dealmaker: Out of Office Autoreply: Where Are You, Dammit?!

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