"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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The information presented in this blog and its individual articles is provided for informational use only and should not be considered investment advice or an offer for a particular security. The contents reflect the views and opinions of the individual writer as of the date the article was written and do not necessarily represent the views of the individual writer on the current date. They also do not in any way, shape, or form represent the views of the Firm Never-To-Be-Named. Any such views are subject to change at any time based upon market or other conditions and The Great Redoubt and its individual writers disclaim any responsibility to update such views. These views should not be relied on as investment advice, and because investment decisions for any security are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any contributor to The Great Redoubt. Neither The Great Redoubt nor any individual author can be held responsible for any direct or incidental loss incurred by applying any of the information offered. Please consult your tax or financial advisor for additional information concerning your specific situation.

Friday, May 13, 2011

Remarks by Treasury Secretary Tim Geithner on the Release of the Social Security and Medicare Trustees Reports

"But in 2036, one year earlier than was projected in last year's report, the Social Security Trust Fund will exhaust its assets and incoming revenues will be insufficient to maintain payment of full benefits.  Due to technical changes in the economic assumptions underlying the projections, Medicare's Hospital Insurance Trust Fund will exhaust its assets in 2024, five years earlier than was projected in last year's report."
I don't know about you, but this pretty much means that it will exhaust its assets and incoming revenues will be insufficient to maintain payment of full benefits almost exactly around the time I'm going to be retiring.
Hoo.  Ray.

Department of the Treasury
As Prepared for Delivery
For the Social Security Report, visit link.
For the Medicare Report, visit
The Social Security and Medicare Boards of Trustees met this morning to complete their annual financial review of the programs and to transmit their reports to Congress. 
I'd like to welcome my fellow Trustees and particularly our two new Public Trustees, Charles Blahous and Robert Reischauer.   Public Trustees are essential to the process of completing these reports, and I am pleased that these two gentlemen are now involved.  I also want to acknowledge the chief actuaries, Stephen Goss and Richard Foster, and their staffs. Thank you all for your hard work.
Today's reports make clear that while both Social Security and Medicare have sufficient resources to meet their obligations for at least the next decade, it is important that we put in place reforms to strengthen these programs.  Fundamentally, Social Security and Medicare benefits are secure today, but reform will be needed so that they will be there for current and future retirees.
The Social Security program has dedicated resources that will cover benefits for the next 25 years.  But in 2036, one year earlier than was projected in last year's report, the Social Security Trust Fund will exhaust its assets and incoming revenues will be insufficient to maintain payment of full benefits.  Due to technical changes in the economic assumptions underlying the projections, Medicare's Hospital Insurance Trust Fund will exhaust its assets in 2024, five years earlier than was projected in last year's report.  The Medicare report illustrates the importance of the Affordable Care Act, which has significantly strengthened Medicare's finances and extended the life of the Medicare Trust Fund.
The Trustees Reports underscore the need to act sooner rather than later to make reforms to our entitlement programs.  Last year, the President and Congress took a timely first step by enacting the most significant entitlement reform in decades.  But we must go beyond the Affordable Care Act and identify additional reforms.  Americans are living longer, and health care costs are continuing to rise.  And if we do not do more to contain health care costs, our commitments will become unsustainable.
In light of these realities, the President recently proposed a balanced, comprehensive framework for deficit reduction.  This framework includes health care reforms that will generate substantial additional savings on top of those generated by the Affordable Care Act.
We should not wait for the Trust Funds to be exhausted to make the reforms necessary to protect our current and future retirees.  Larger, more difficult adjustments will be necessary if we delay reform.  And making reforms soon that are phased in over time would help reduce uncertainty about future retirement benefits.
As the President has said, Social Security and Medicare are more than just government programs.  They are commitments that define America as a country where government can make a difference in people's lives.  They are commitments that make our society more fair and more progressive.  They are commitments that we have kept for generations.  Our imperative to make reforms is an imperative to maintain these commitments and to ensure that the next generation of Americans can count on retirement security.
On Monday, May 16 – just three days from today – the United States will reach the debt limit set by Congress.  Because Congress has not yet acted, we have now set in motion a series of extraordinary measures that will give Congress some additional time to raise the debt limit.  I want to again encourage Congress to move as quickly as possible, so that all Americans will remain confident that the United States will meet all of its obligations – not just our interest payments but also our commitments to our seniors. ​

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Consumer Price Index News Release

The latest Consumer Price Index news release (http://www.bls.gov/news.release/pdf/cpi.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.

On a seasonally adjusted basis, the CPI-U increased 0.4 percent in April after rising 0.5 percent in March. The index for all items less food and energy rose 0.2 percent in April after increasing 0.1 percent in March.

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World News and Happy Friggatriskaidakaphobia Day!

Galactic Empire
United Nations
  • The United Nations Environment Programme released a report today warning that, if changes are not made - global consumption of minerals, fossil fuels, and biomass could triple by the year 2050.  The overall theme of the report is stressing the importance of "decoupling" human well-being and economic activity from resource use - i.e. finding ways to become more efficient[1] in global resource use without degrading standards of living or harming economic growth.  Read the report.
United States
[1]  Dare I say "sustainable".
[2]  He hasn't been convicted yet.
[3]  And also happens to be the great-grandson of John D. Rockefeller.

Consumer Price Index

The CPI-U[1].  A measure of the rate of change in the overall price of a fixed basket[2] of goods and services from month to month.  The premier measure of inflation in the United States.
March CPI was nowhere near as bad as February.  CPI-U was up 0.5% (right in line with expectations), with the "core" CPI-U rising only 0.1% (beating expectations).  Food rose 0.8%, with "food at home" rising 1.1%, and energy rose 3.5%.  For the rolling 12 months ending March 2011, CPI-U is up 2.7%, with food at home up 3.6% and gasoline up 27.5%,  The Econoday-surveyed analysts are expecting April to be even better, calling for a 0.4% increase in CPI-U and a 0.1% increase in "core" CPI-U.
As is our wont, we turn to the US Bureau of Labor Statistics for the Consumer Price Index Summary to see if those analysts were right.  And, in a nutshell, they were half right.  CPI-U increased 0.4% in April (as expected), while core CPI-U increased 0.2% (missing expectations).  The energy index rose 2.2% (with gasoline up 3.3%), while the food index increased 0.4% (with food at home increasing 0.5%).  And for the rolling year, CPI-U is up 3.2%.
[1]  More formally, the Consumer Price Index for All Urban Consumers.
[2]  Of course, "fixed" is a relative term.  Obviously, the contents of the basket will change over time.  After all, when was the last time your household had to concern itself with the increasing costs of buggy whips or typewriter ribbons?  More interestingly, what components of the basket are considered "core" also change from time to time.

Thursday, May 12, 2011

World News!

  • Spain suffered two earthquakes - one magnitude 4.4 and the second, felt two hours later, at magnitude 5.2 - centered near the town of Lorca (southeast of Madrid on the Mediterranean Sea).  Eight people were killed, at least 130 injured, and around 20,000 buildings were damaged.
United States

Producer Price Index News Release

The latest Producer Price Index news release (http://www.bls.gov/news.release/pdf/ppi.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.

The Producer Price Index for finished goods rose 0.8 percent in April, seasonally adjusted. This advance followed increases of 0.7 percent in March and 1.6 percent in February. Prices for finished goods less foods and energy moved up 0.3 percent.

News releases archives: http://www.bls.gov/schedule/archives/all_nr.htm
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Retail Sales

And now, it's time for the US Census Bureau to tell us about the changes in total receipts at stores that sell durable and nondurable goods.
If you recall, March results were mixed.  Overall retail sales were up only 0.4% (missing expectations), but ex-auto retail sales were up 0.8% (beating expectations).  In other words, sales were pretty good if you weren't trying to sell cars..  Furniture and home furnishings had the best month (up 3.6%) followed by gasoline stations (up 2.6%).
For April, the Econoday-surveyed analysts are moderately confident.  They're calling for a 0.6% increase in retail sales, and for the retail sales less autos to still increase 0.6%.
And what does the report say?  Well, once again, the results are mixed.  Overall retail sales were up 0.5% (missing expectations), but ex-auto retail sales were up 0.6% (meeting expectations).  In other words, once again sales weren't bad if you weren't selling cars.  Gas stations did best overall, with a 2.7% increase in sales, while sporting goods, hobby, book & music store sales had the worst month (with sales slipping 1.9%).

Producer Price Index

This week isn't just about employment, however.  It's also about inflation.  And today, we'll be focusing on the impact of inflation on producers.  The Producer Price Index is a report that measures the change in manufacturing costs in the United States and, while it isn't a direct measure of inflation (we measure inflation based on consumer costs and,even though producers must consume to get raw materials, they don't count as consumers for this purpose) it is a distinct barometer of inflation trends.  Eventually, production costs get passed on to consumers, after all.
The March figures were, well, mixed.  PPI for finished goods increased 0.7% in March (beating expectations), although "core" PPI increased 0.3% (missing expectations).  PPI for finished foods fell 0.2% (led by fresh and dry vegetables, which dropped 21.4%), but PPI for finished energy rose 2.6% (led by gasoline, which rose 5.7%).  PPI for intermediate goods rose 1.5%, and PPI for crude goods fell 0.5%.
The Econoday-surveyed analysts are feeling slightly more optimistic this month, calling for only a 0.6% increase in PPI for finished goods, and only a 0.2% increase in core PPI for finished goods.
And, as always, we turn to the Bureau of Labor Statistics Producer Price Indexes report to see if the analysts are right.  And the short answer is that they are not.  PPI for finished goods rose 0.8%, with core PPI for finished goods coming in at a 0.3% increase.  the PPI for finished foods rose 0.3% (driven by the index for eggs for fresh use, which climbed 56.7%), and the PPI for finished energy rose 2.5% (driven by - wait for it - gasoline, which climbed 3.6%).  PPI for intermediate goods is up 1.3%, and PPI for crude goods is up 4.0%.

First Time Jobless Claims

It's Thursday, so once again it is time to return to the well and examine the jobless claims report.
As you may recall, last week's results were staggeringly bad.  Initial claims for 4/23 were revised upwards to 431,000, and then the initial claims for 4/30 were reported at 474,000 (missing expectations by 64,000).  The unadjusted claims came in at 412,873 (an increase of 27,251), and the total number of people claiming benefits in all programs was 8,014,919 (a 171,547 decrease from the prior week[1]).
This week, the Econoday-surveyed analysts are still optimistic.  They're calling for only 430,000 new claims.
Turning to the US Department of Labor's Unemployment Insurance Weekly Claims Report, we see that those analysts were pretty much on target.  The first time claims for 4/30 were revised downwards to 473,000, and the advance figure for initial claims for the week ending 5/7 comes in at 434,000 - a figure that misses expectations by 4000 but, after last week, I think people will take it.  Unadjusted initial claims for 5/7 come in at 394,583, and the total number of people claiming benefits in all programs comes in at 7,983,672 ( a decline of 31,247 from the previous week[2]).
[1]  I did some similar calculations last week, but here goes:  April added 244,000 new jobs, or about 61,000 a week on average for the month.  This means that, at best, only 35.5% of that decline in the number of people claiming benefits can be attributed to people finding employment.  The other 64.5% (best case) just ran out of time and can no longer claim benefits.  So that 171,547 drop really isn't a cause for celebration.
[2]  I'll leave the optimism/pessimism calculations for this week as an exercise for the reader.

Wednesday, May 11, 2011

World News

  • Wang Jian, a researcher with China's national Development and Reform Commission, said that China may begin cutting interest rates for the rest of the year in an effort to stave off a possible economic slowdown.  "The central bank will be very cautious about raising interest rates.  In fact, I believe it may stop raising interest rates but cut interest rates in the second half of this year," he said in a Reuters interview.
Great Britain
  • EU finance ministers will be discussing the possibility of aid to Greece next week, but will not make any final decisions until after a mission to Athens gives its verdict on progress on required financial reforms.  Meanwhile, in what can only be described as a concerted effort to ensure that no further financial aid will be forthcoming, large-scale strikes protesting attempts to meet existing austerity targets have crippled the nation.
  • Toyota Motors, despite their production difficulties, has vowed to stay in Japan.  "Toyota was born in Japan, raised in Japan and is now a global company," said Toyota President Akio Toyoda, "I love Japan and I want to keep the tradition of manufacturing strong here."
  • The Syrian army, responding in its typically sensitive to human rights fashion, spent Wednesday attempting to suppress pro-democracy protests in Homs by shelling and machinegunning the neighborhood of Bab Amro.  The official position of the Syrian government appears to be that all of the violence is being caused by "armed terrorist groups".
United States
  • Pro-democracy (or, at least, anit-Saleh) demonstrations have run to a third day in Yemen, paralyzing two major cities and increasing concerns by Saudi Arabia and the United States that the country could collapse into chaos and be used by al Qaeda to operate freely.  Yemeni security forces have attempted to suppress that potential chaos with snipers, gunfire, tear gas, and baseball bat beatings from plainclothes agents.  Protester responses have been unfavorable, and have resulted in at least on police building being burnt down.
[1]  A works council is a German thing.  It is a panel of elected employee representatives that assist workers and push their interests.
[2]  In my opinion, if you care, this is also a little absurd.  Why not a bill to repeal tax breaks for all oil companies, if you're going to do something like this?
[3]  The article calls it "savings from the tax break".  I dislike this, since it implies that the tax money was the government's in the first place, and that they're deciding to save it instead of returning it to a tax payer.  Given that the only money the government has to work with is either money borrowed from investors or money collected through taxes.  It does not save money by increasing taxes.

US International Trade In Goods and Services

It's time for what we optimistically call the trade balance and what we realistically call the trade deficit.  This is a measure of how much the US exports, how much it imports, and what the net difference is between the two.  If the net is positive, we have a trade surplus.  If the net is negative - and it usually is - we have a trade deficit.  For February, we had a trade deficit of $45.8 billion, which missed expectations but was still smaller than January's deficit.
So what's the big deal about a trade deficit, anyway?  Well, a trade deficit has a substantial impact on GDP.  Gross Domestic Product is the sum of private domestic consumption plus gross private domestic investment plus government spending plus the current trade balance.  If the trade balance is a trade deficit, it is subtracted from GDP and causes slower economic growth.
Right now, the Econoday-surveyed analysts are expecting to see the trade deficit expand to $47.7 billion in March.  And the reality?  Well, according to the joint US Census Bureau and US Bureau of Economic Analysis press release, the trade deficit exceeded all but the most pessimistic of analyst expectations and ballooned to $48.2 billion.

MBA Weekly Applications Survey

Once again, it's time for the Mortgage Bankers Association to bring us up to speed on the week's mortgage application activity.  Last week, as you may recall, the situation had improved nicely.  The Market Composite Index was up 4.0%, mostly driven by refinance activity (the Refinance Index was up 6.0%, while the Purchase Index only increased 0.3%).  Refinancing also accounted for 62.7% of total applications, and adjustable-rate mortgages[1] accounted for 6.7% of mortgage activity.  Finally, the average contract interest rate for 30-year fixed-rate mortgages fell to 4.75%.
Now, turning to the report for the week ending 5/6, we see that things have improved further.  The Market Composite Index increased 8.2%, driven by an increase in both the Refinance Index (up 9.0%) and the Purchase Index (up 6.7%).  Refinancing activity increased to 63.1% of total applications, and adjustable-rate mortgages slipped to 6.5% of total applications.  Finally, the average contract interest rate for 30-year fixed-rate mortgages fell to 4.67%.
[1]  Remember those?

Tuesday, May 10, 2011

World News!

European Union
  • In the wake of the earthquake, and tsunami, and Fukushima nuclear disaster, Prime Minister Naoto Kan has stated that Japan will be reexamining its energy plans.  "The current basic policy envisages that over 50% of total electricity supply will come from nuclear power while more than 20% will come from renewable power in 2030," he said, "But that basic plan needs to be reviewed now from scratch after this big incident."
  • In a move to stabilize relations between the United States and Pakistan in the wake of the "Osama Bin Laden was apparently living 35 miles from Islamabad for years" controversy, Pakistani government officials indicated that they may allow US investigators to question Osama Bin Laden's wives.  No final decision has been made, however.
  • Do you think our relationship with Pakistan is strained right now?  It could have been far worse.  It was revealed yesterday that President Obama insisted that the force that infiltrated Pakistan and killed Osama Bin Laden be large enough to fight its way back out of Pakistan if confronted by hostile local police officials or soldiers.  "Their instructions were to avoid any confrontation if at all possible.  But if they had to return fire to get out, they were authorized to do so."  Additional details about the mission are that there were two teams of specialists on standby - one to bury Bin Laden if he was killed, and the second to interrogate him if he was captured alive.
  • The island nation is set to leap forward 1 day in time, as it prepares to switch which side of the international date line it is on in order to facilitate trade with Australia and New Zealand.
United States
[1]  Quote from the Attorney General.
[2]  Which programs "these programs" are is not specified.

U.S. Import and Export Price Indexes News Release

The latest U. S. Import and Export Price Indexes news release (http://www.bls.gov/news.release/pdf/ximpim.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.

U.S. import prices increased 2.2 percent in April, after rising 2.6 percent in March. Higher fuel and nonfuel prices contributed to the advances in each month. Prices for U.S. exports increased 1.1 percent in April following a 1.5 percent advance in March.

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NFIB Small Business Optimism Index

It's time for the National Federation of Independent Businesses to release its survey of small business attitudes towards topics such as employment, capital spending, inventories, credit conditions, and so on and so forth.  You know.  All those things that represent the life blood of a business.  And since small businesses employ right around half of all private sectors and pay nearly half of the total US private payroll, those things also represent the life blood of US GDP.
Last month, we saw a bearish small business sector, with a 2.6 decline in the overall index (falling to a level of 91.9).  The survey results indicated that small businesses were bearish on employment, economic improvement, and earnings, but were bullish on capital outlay plans and plans to increase employment.
There are no analyst projections, mostly because analysts don't seem to really care about this report.  The press release shows a second month of waning optimism, with the index falling 0.7 to a level of 91.2 for April.  Drilling into the report, we see that small businesses are optimistic about earnings , and substantially pessimistic about economic improvement, future capital outlays, and economic improvement.

CNN Breaking News - Microsoft agrees to buy Skype

From: CNN Breaking News [mailto:BreakingNews@mail.cnn.com]
Sent: Tuesday, May 10, 2011 8:02 AM
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Subject: CNN Breaking News

Microsoft agrees to buy Skype for $8.5 billion, Fortune has confirmed.

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Monday, May 9, 2011

World News!

  • Prime Minister Yusuf Raza Gilani will be addressing his nation about the US infiltration of Pakistan and the killing of Osama Bin Laden last week, and is expected to deliver a stern warning against further military missions inside Pakistan by foreign forces.  The main opposition party is not impressed.  "We want resignations," stated an official of the Pakistan Muslim League, "not half-baked explanations."
  • Tanks, snipers, and infantry have cordoned off a suburb of Damascus and have begun a house by house sweep for pro-democracy protesters.  Electricity and telephone services have been cut, and "heavy gunfire" is being reported.  The number of civilians killed has not been confirmed.  The ICC chief prosecutor has not yet indicated whether he will seek warrants for the arrest of any Syrian top officials.
United States
[1]  Surely you remember this one?  The news item from Friday in which the Department of Homeland Security stated "We have no information of any imminent terrorist threat to the US rail sector"?
[2]  No word yet on whether or not the US government will be taking additional steps to "provide a greater level of security to the public" such as restricting internet content, banning groups in excess of ten individuals from meeting, confiscating firearms, requiring homeowners to house soldiers, or suspending warrants.