Santelli and Levin on Government Manipulation of the Market

Santelli and Larry Levin try to talk some sense into Steve Liesman. Really good clip. CNBC isn’t all fluff:

Edit: Looks like CNBC removed the clip. Apparently it wasn’t kosher with the powers that be.

John Mauldin Pokes Holes in Government Unemployement Data

In his latest newsletter, Mr. Mauldin explains how the official unemployment numbers are flawed. The problem lies in adjustments which attempt to correct for jobs that aren’t tracked well by current methods:

Last month saw the number of unemployed rise by 345,000. What was not in the headline data was that 217,000 of those jobs were estimated from the “birth-death” ratio. The US economy creates new businesses that do not get counted in the data, so the BLS estimates what that number is, using previous data patterns. When the economy turns, it overestimates new jobs in recessions and underestimates them in recoveries. No conspiracy, it is just the best methodology we currently have.

But does anyone really think 200,000 jobs were created last month? The real number of lost jobs is worse than the headline. And next month the birth-death number will likely be over 200,000 again. Add another 100,000 or so to the headline number to get closer to reality.

Mauldin ends the newsletter by stomping out some Green Shoots. Yes, I hate this overused term as much as any self-respecting bear. But as long as Kudlow and his ilk keep using it, we bears need to provide counterarguments using the same silly terminology. Goldilocks Economy? Really?

On to Mauldin’s take:

Again, analysts talked about a turnaround because job losses were “just” 345,000. That is a higher number than any month in the 2001-02 recession, and larger than the month after 9/11. That is a green shoot? Yes, we will see the monthly unemployment numbers fall, but they are falling from historic highs.

While the rate of decline is decreasing (oh so slightly), it is only doing so because of drastic government actions. Taxpayers, foreigners, and future generations are footing the bill. Even if citizens realize what’s going on, digital-printing will likely continue. Entrenched powers view inflation as the least-evil outcome, and so do a majority of Americans. Those with lots of leveraged assets are praying for big inflation (REITs, for example).

If you don’t already subscribe to Thoughts from the Frontline, I highly recommend it. It’s free, and is the only way to get his entire post. The site only has excerpts from each letter.

San Fran Fed: Unemployment May Reach 11% in 2010

The San Francisco Fed recently published a dreary outlook. The unemployment commentary was particularly negative (for the Fed, at least). But if the past is any sort of guide, in a few years these Fed “worst cast scenarios” will look like rosy pipe-dreams. More on that later. Here are some excerpts from the FRBSF:

The long and gradual return to pre-recession unemployment levels implied by the Blue Chip consensus forecast is consistent with a labor market recovery that is slightly weaker than that experienced in 1983 and slightly stronger than that experienced in 1992. However, should labor market conditions instead proceed along the path taken in the 1992 recovery, the unemployment rate could peak close to 11% in mid-2010 and remain above 9% through the end of 2011.

They also provide this handy alternative unemployment chart, which includes involuntary part-time workers (people who want to be full-time, but can only get PT):


Not Pessimistic Enough

As dire as these predictions seem, they all assume growth is right around the corner. Look at the graphs, they all assume a few more months of recession at most. What if we’re in the modern equivalent of 1930? A rebound in consumer spending is always just a few months away, according to most analysts/economists. But spending and revenue are staying down, for the first time in a long time. And I don’t think it’s temporary shift, nor is it enough to turn the tide. While saving is up from negative territory, to 6%+ last month, it’s still not nearly enough to pay off our tremendous debts (public and private).

If the spending-bubble does stop here, we still have a lot more pain coming. The traditional Keynesian solution is more debt and unsustainable bailouts. That worked for a long time, but our decades-long debt spree is finally catching up with us. We  may be at the breaking point. Discretionary spending has never seen a pullback like the current one.

Gov intervention is the only thing preventing a total collapse. Such a collapse would arguably be preferable in the long-run, as it would solve the horrendous moral hazards and “reverse darwinism” we face, as Peter Schiff says. But that doesn’t change the fact that a collapse is highly unlikely, as I argue in this piece. The Gov will fight it tooth and nail, using whatever means necessary. So even bigger deficits are in the cards, and sustained inflation is very likely.

Those who think the Fed will start sopping up liquidity from the system are delusional. That would just pull the rug out from under the “recovery”, causing another crash and resulting in more bailouts and Keynesian magic (unless there were somehow a huge shift in philosophy among the economic powers that be).

There are just too many negative catalysts near-term.  State governments going broke (or getting bailed out), pensions doing the same, CRE’s awe-inspiring collapse, dwindling tax revenue at both the Federal and State level. When unemployment benefits start to run out, consumer spending will plummet further.

And with Summers, Bernanke, and Geithner as top-dogs in the administration, the most likely outcome is inflation. Those who doubt their ability to encourage inflation ignore history. They’ll find a way. Unless they let a collapse happen, wiping out debt via devaluation of the dollar will be the only option at some point. If that’s the “growth” green-shooters are harping about, count me out. Omnisan Investment posed an excellent question to those who advocate an inflationary outcome:

After all, if the Dow hits 30,000, but you’re celebrating by drinking a $150.00 coke… are you really any richer?

No position in any stocks mentioned. This is not investment advice, posted for informational purposes only.

Roundup 6/27/2009

USA 2009 = Argentina 2001? – In depth analysis of how the situations differ and are alike.

The 7 Habits of Highly Suspicious Hedge Funds – “He ratchets up his risk. He knows he won’t be able to turn it around fast enough if he plays it prudently, whereas there is some chance to stay in the game if he bets it all on 00, or better yet, if he levers up as much as he can, borrows all the money he can get his hands on, and then bets all of that on 00. If he loses, well, he was going to be gone anyway, so he may as well try for the big time.”

The Country That Punishes Savers – Despite the government’s best efforts, people are increasing their saving rates. How far will they go to increase consumer spending? Very.

Fed Balance Sheet Not Adding Up? – Tyler from ZH thinks that the Fed is manipulating data to mask the lack of foreign buying. A comment sums up the thesis: “foreigners are not buying many Treasuries and the powers that be don’t think we can handle it.”

TARP gives British Rum Maker $2.7 billion – A consequence of rushing legislation with scare-tactics.

And a little Peter Schiff, dishing on cap & trade, the dollar, clinton, etc:

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