Recession Watch: March

[RedRalph]

FTSE has lost over 5%

 

[civ_king]

DOW is in the 6000-6999 range

 

[Godwynn]

S&P 500 was first at this level in October 1996.

 

[GenMarshall]

DOW when belly up at below 6,999.

"Game over man, Game over" - Zoey from L4D

 

[JerichoHill]

but by the same token, if someone was stilol in eomployment in the 30s and had been for some times since the depression started, you could reasonably predict they were safe, whereas now, pretty much no one is, no? also, many people counted as employed today are in short contracts which are NOT going to be renewed, and they know it

No one was really safe during the Great Depression. Blue collar and white collar workers were heavily unemployed.

A neighbor of mine was laid off several months ago but he's been able to freelance since then, and recently got hired under a contract for a project that'll take two months. That kind of flexibility did not exist in the 30s economy.

25% of potential workers are sitting on their front porch with nothing to do, is the same as in 2009 as in 1930. We aren't there yet, it's foolish to claim we're at GD levels yet, and why everyone ignores the 1979-1981 recession amazes me

 

[JerichoHill]

What short term figures would you consider sufficiently resistant to random noise?

By the very definition of "short-term", it is not resistent to randomness. I prefer to watch quarterly figures from the BLS and BEA, and as I pointed out, the figures for unemployment/underemployment, business inventories (and sectors), and confidence measures.

Yeah certaintly, but thats exactly the type of reason why comparing unemployment figures nowadays to 1930s ones may not show the true comparison.

It is fairly easy to get a sense of underemployment and relate it to conditions of unemployment.

PS: Might as well call this thread "DOW WATCH" No one seems to get it that the DOW isn't the sole indicator of economic health. The DOW measures the 30 largest companies! 30!!!!

 

[Mise]

I guess the capacity utilisation charts in Integral links would be a decent basis of comparison between the Great Depression and now?

 

[Integral]

The ISM Manufacturing Index stands at 35.8%, up 2 basis points from January and up 290 basis points from December. So manufacturing is still contracting, but at a slower rate. We'll see how that compares to Census Bureau data on Thursday.

Manufacturing contracted in February as the PMI registered 35.8 percent, which is 0.2 percentage point higher than the 35.6 percent reported in January. This is the 13th consecutive month of contraction in the manufacturing sector. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates contraction in both the overall economy and the manufacturing sector. Ore stated, "The past relationship between the PMI and the overall economy indicates that the PMI for February (35.8 percent) corresponds to a 1.7 percent decline in real gross domestic product (GDP) on an annual basis."

Some key highlights from the ISM report:
- ISM's New Orders Index registered 33.1 percent in February, 0.1 percentage point lower than the 33.2 percent registered in January. This is the 15th consecutive month of contraction in the New Orders Index. A New Orders Index above 48.8 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

- ISM's Production Index registered 36.3 percent in February, which is an increase of 4.2 percentage points from January's reading of 32.1 percent. An index above 50.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. This is the sixth consecutive month of decline in production.

- ISM's Employment Index registered 26.1 percent in February, which is 3.8 percentage points lower than the 29.9 percent reported in January. This is the seventh consecutive month of decline in employment. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

The Employment Index does not bode well for Friday. What are the odds that nonfarm payroll employment sinks below 134 million?

--

BEA, Personal Income and Outlays

PERSONAL INCOME AND OUTLAYS
January 2009
Personal income increased $44.8 billion, or 0.4 percent, and disposable personal income (DPI) increased $183.0 billion, or 1.7 percent, in January, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $56.4 billion, or 0.6 percent. In December, personal income decreased $24.0 billion, or 0.2 percent, DPI decreased $17.8 billion, or 0.2 percent, and PCE decreased $101.2 billion, or 1.0 percent, based on revised estimates.

Real disposable income increased 1.5 percent in January, compared with an increase of 0.4 percent in December. Real PCE increased 0.4 percent, in contrast to a decrease of 0.5 percent.

 

[SS-18 ICBM]

No investors are being screwed The investors screwed us by hiring executives that ran their banks into the ground. This mess is their fault. They have well earned losing their entire investment.

I thought people were arguing that the shareholders should have more say in executive compensation?

 

[Cutlass]

I thought people were arguing that the shareholders should have more say in executive compensation?

Yes. That's true. The thing is that in many cases the investors are out of the loop, or at least largely so, in decisions concerning how companies are run, and even who runs them. (In addition to what those people are paid) And that's their fault. If the owners of a company can't, or won't, take control of it, then if it's run into the ground they deserve to lose their investment.

 

[Theige]

PS: Might as well call this thread "DOW WATCH" No one seems to get it that the DOW isn't the sole indicator of economic health. The DOW measures the 30 largest companies! 30!!!!

Its not even the 30 largest!

Do they not include the likes of Google, Apple, Oracle, Cisco, etc. because they don't want the DOW dominated by tech companies?

I think they should modify the DOW to be only the 30 largest. Adjust it every 2 or 3 years maybe.

And require that any company that appears insolvent, or whose market cap drops below $10 or $15 billion be dropped immediately.

CITI and GM still being there is ********. These are now penny stocks whose short term integrity is severely questioned.

 

[Snorrius]

$61bn Dollars!!!!!!!

Probably, they had to pay a lot of CDSes. This will be a good lesson for those who use too complex financial tools.

 

[Theige]

Probably, they had to pay a lot of CDSes. This will be a good lesson for those who use too complex financial tools.

AIG's problem was being only on one side of the CDS trade. They insured many, many of these swaps, while owning none themselves.

Spoiler :

Most banks, though, were not all that bad off, because they were simultaneously on both sides of the CDS trade. Most banks and hedge funds would buy CDS protection on the one hand and then sell CDS protection to someone else at the same time. When a bond defaulted, the banks might have to pay some money out, but they'd also be getting money back in. They netted out.

Everyone, that is, except for AIG. AIG was on one side of these trades only: They sold CDS. They never bought. Once bonds started defaulting, they had to pay out and nobody was paying them. AIG seems to have thought CDS were just an extension of the insurance business. But they're not. When you insure homes or cars or lives, you can expect steady, actuarially predictable trends. If you sell enough and price things right, you know that you'll always have more premiums coming in than payments going out. That's because there is low correlation between insurance triggering events. My death doesn't, generally, hasten your death. My house burning down doesn't increase the likelihood of your house burning down.

Not so with bonds. Once some bonds start defaulting, other bonds are more likely to default. The risk increases exponentially.

Credit default swaps written by AIG cover more than $440 billion in bonds 2. We learned this week that AIG has nowhere near enough money to cover all of those. Their customers-those banks and hedge funds buying CDSs-started getting nervous. So did government regulators. They started to wonder if AIG has enough money to pay out all the CDS claims it will likely owe.

This week, Moody's Investors Service, the credit-rating agency, announced that it was less confident in AIG's ability to pay all its debts and would lower its credit rating. That has formal implications: It means AIG has to put up more collateral to guarantee its ability to pay.
http://www.reuters.com/article/newsOne/idUSMAR85972720080918

That article explains it well.

 

[Snorrius]

AIG's problem was being only on one side of the CDS trade. They insured many, many of these swaps, while owning none themselves.

I see the point but it is just shows that someone have to play insurance part in the CDS game. If they would start to sell CDSes than it would consume most of their income from CDSes, so what is the point? The actual problem is that like many other modern financial tools it was underregulated and AIG could not avoid temptation to get too much.

 

[innonimatu]

The change in the nature of employment actually benefits today versus harming it. If you take the contract theory, in the 1930s firms hired workers for their working life, or so was the implied contract. Given the depression, laid off workers struggled to find new jobs, in part because of that implicit contract. Now, companies can hire for short periods only, so there is a bit more flexibility

No, that "flexibility", so championed (in Europe at least) for the past decade or so, makes things much worse. Because people can be easily fired, they'll cut spending in anticipation of that. Those cuts in spending mean less demand, therefore firms must cut production - leading to more job losses. Job "flexibility" increases instability and feeds this depression cycle. In Europe the country where the government has consistently been defeated in its attempts to "reform" the job market, France, is also the one which has so far suffered least during this depression.

A lot of employers, especially manufacturers, are asking this question of their workers. And most workers seem to favour the latter, judging by the number of 4-day weeks, salary deferals, etc.

That also happened during the Great Depression. In fact it went much further: because employers and employees had a more stable relation, the wage cuts and firings could and often were planned in a way that affected families the least: should a household have two people employed at a factory, the employer would try to avoid firing both... how many of the "rent-a-worker" companies of today care?

Yes. That's true. The thing is that in many cases the investors are out of the loop, or at least largely so, in decisions concerning how companies are run, and even who runs them. (In addition to what those people are paid) And that's their fault. If the owners of a company can't, or won't, take control of it, then if it's run into the ground they deserve to lose their investment.

It is not their fault - not in the way you meant. To start with I'd like to point out, again, that people who buy stock are usually speculators, not investors, in the real economic sense. They're not putting money into a productive business, but merely trading securities in expectation of making speculative trade gains and - to a lesser degree - receiving a small share of business profits.

By the very nature of their priorities they are not supposed to care about the long-term management of the business. They are not supposed to get involved in the management of the company they speculated on. They don't have either the time or the ability to so so - they cannot manage the companies. And without this they cannot make informed decisions about that management - shareholders don't control companies. The idea that they do is a fiction, a relic of early capitalism which hasn't been true for over 100 years.
Read Adolf Berle's works, or at the very least Galbraith, please! It's frustrating to see the same mistakes being repeated...

 

[mrt144]

It is not their fault - not in the way you meant. To start with I'd like to point out, again, that people who buy stock are usually speculators, not investors, in the real economic sense. They're not putting money into a productive business, but merely trading securities in expectation of making speculative trade gains and - to a lesser degree - receiving a small share of business profits

This is only half right. Many if not most people shift their portfolios to fixed income and high dividend stocks as they get older to protect their gains on speculation during their youth and generate an income stream. Those that do not deserve their fate.

 

[innonimatu]

This is only half right. Many if not most people shift their portfolios to fixed income and high dividend stocks as they get older to protect their gains on speculation during their youth and generate an income stream. Those that do not deserve their fate.

Those who do that would be expecting profits more than speculative trade gain. But they're still not investors, as they're not risking capital in creating new business but only buying a share of an existing one. Under these circumstances they regard dividends more as a rent than as business profit. And these small shareholders usually hold shares through investment funds (or pension plans) and still cannot devote the time, or acquire the skill, to understand and exercise any kind of control over the management of the companies they partially (and we're talking about very small parts) own. Perhaps some will invest on a single company and manage to understand it, but that is (wisely) regarded as highly risky, and understanding the company wouldn't necessarily translate to having real influence over the company anyway.

 

[mrt144]

Those who do that would be expecting profits more than speculative trade gain. But they're still not investors, as they're not risking capital in creating new business but only buying a share of an existing one. Under these circumstances they regard dividends more as a rent than as business profit. And these small shareholders usually hold shares through investment funds (or pension plans) and still cannot devote the time, or acquire the skill, to understand and exercise any kind of control over the management of the companies they partially (and we're talking about very small parts) own. Perhaps some will invest on a single company and manage to understand it, but that is (wisely) regarded as highly risky, and understanding the company wouldn't necessarily translate to having real influence over the company anyway.

I wasn't arguing that point, rather that people do care about getting a share of their of a company's profit when they take a slice of ownership via stock. Also, buying first offerings for bonds isn't ownership per se, but does contribute to the health of a company.

Also, not everyone can be a venture capitalist, which you seem to be implying a "true" investor is.

 

[Mise]

I think the point is, those small investors read up about the managers, their strategies, their histories, their plans, etc, and then say, "hm, I like that manager - it seems he's going to make this company profitable," and then buy the shares. If the manager gets booted out by the people who actually have a say in how the business is run, then those small investors can say, "hm, I don't like the new manager, I don't think they're going to do well," and pull their funds out. That won't affect shareprice, nor will it affect management decisions -- but they are still exercising a vote, and exercising their will over what kind of company they want to invest in. Their portfolio, therefore, will consist of companies whose management conforms to the individual's standards of management competency. Add this up to the millions of individual shareholders, and you get a pretty decent proxy for what individual investors want from a manager -- in the same way that millions of votes adds up to a decent president.

 

[Rashiminos]

DOW when belly up at below 6,999.

"Game over man, Game over" - Zoey from L4D

Isn't that quote from Aliens?