Saturday, May 23, 2009

Krugman vs. Ferguson

Check out this exchange between Paul Krugman and Niall Ferguson (among others).

Briefly, Krugman and Ferguson agree that the future of the U.S. economy depends upon how large the U.S. national debt becomes and how the world views the value of this debt.  If, instead, the U.S. has to print money to meet its obligations, then inflation will ensue...and things get a little dicey.  Paul Krugman (the optimist here) does not believe this is likely to happen...but Niall Ferguson is not as sure and suggests a long-term conservative that, in my opinion, would lead to cutting important social programs (education, healthcare, etc.)..which will lead to other economic problems.  Maybe, Bush shouldn't have pushed for cutting taxes in the early 2000s at a time when were entering into a war in Iraq and started running deficits again.  What do you think?

Friday, May 22, 2009

Is California Too Big to Fail?

Joe Matthews of the NY Times asks the question:  "Is California Too Big to Fail?".
"IS California too big to fail?

That’s the question President Obama and Congress will soon face. While many states have severe fiscal problems, the depth and unusual persistence of California’s budget problems — the state has run deficits for most of the decade — has emptied Sacramento’s till. On its current path, California will run short of the cash it needs to pay its bills in late July.

It’s highly unlikely that the state’s political leaders will be able to fix the problem themselves. Typically, states build up a cushion of tax revenues in the spring to pay expenses through the fall, when little cash comes in. But enormous drops in tax revenue have left California without the savings to meet even one month’s worth of expenses.

The other methods of cash management — transfers to the general budget from other state accounts and short-term borrowing in the credit markets — are no longer enough to address the problem. California’s leaders have drawn so deeply in recent years on the state’s hundreds of special funds that there is little cash left to repurpose.

And selling short-term notes in the credit markets is difficult because of California’s credit rating, the lowest of any state. Even if the state could pay high interest costs, California may require more cash — more than $20 billion by some estimates — than it can plausibly acquire in the markets."

Let's hope not!

The Stock Market is Still Way Over-Valued!

Check out this analysis by Mish and John Mauldin

On April 10, 2009, the total earnings estimate for all of the S&P 500 companies was a combined $28.51.   
"The S&P closed Thursday at 888. That's a richly priced PE [price/earnings ratio] of 31 [888/28.51= ~31]. Let's assume that earnings recover to $48. That's still a richly priced PE of 18.5. A bear market bottom might sport a PE of 10-12 but let's be generous and use 15.

15*$28.51 would put the S&P 500 at 382!
Let's be more generous and use an earnings estimate of $48.
15*$48 would put the S&P 500 at 720!

No matter how you slice and dice things, fundamentally the stock market is very pricey."

Changes to text in bold.

Thursday, May 21, 2009

GDP: U.S. vs. China

Sometimes, we lose perspective on what an economic powerhouse the U.S. really is!

A comparison courtesy of a Wolfram Alpha search:

While China's GDP growth averages more than 3Xs that of the U.S.,
pay attention to the current absolute values:  $13.8 Trillion (U.S.) vs. $3.4 Trillion (China)

And...the per capita GDP of the U.S. is approx. 28 times that of China.  Staggering!

| United States | China GDP at exchange rate | $13.78 trillion per year | $3.4 trillion per year  GDP in local currency | $ 13.78 trillion  (US dollars) | yuan 25.87 trillion  (Chinese yuan)
GDP per capita | $41 770 per year | $1533 per year GDP real growth | +3.222%per year | +9.9%per year inflation rate | +2.653%per year | +4.991%per year unemployment rate | 7.2% | 4%

It's a Long Way to the Top....

It's a long way to the top....  unemployment numbers still have a ways to go....

See chart here.
(Hat tip to CalculatedRisk)

From the U.S. Department of Labor:

U.S. Department of Labor
Office of Public Affairs
Washington, D.C.
Scott Gibbons (202) 693-3008RELEASE IS EMBARGOED UNTIL
Tony Sznoluch (202) 693-31768:30 A.M. (EDT), THURSDAY
Media Contact :May 21, 2009
(202) 693-4676 



In the week ending May 16, the advance figure for seasonally adjusted initial claims was 631,000, a decrease of 12,000 from the previous week's revised figure of 643,000. The 4-week moving average was 628,500, a decrease of 3,500 from the previous week's revised average of 632,000.

The advance seasonally adjusted insured unemployment rate was 5.0 percent for the week ending May 9, an increase of 0.1 percentage point from the prior week's unrevised rate of 4.9 percent.

The advance number for seasonally adjusted insured unemployment during the week ending May 9 was 6,662,000, an increase of 75,000 from the preceding week's revised level of 6,587,000. The 4-week moving average was 6,480,500, an increase of 131,000 from the preceding week's revised average of 6,349,500.  

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.071 million.


The advance number of actual initial claims under state programs, unadjusted, totaled 536,588 in the week ending May 16, a decrease of 33,824 from the previous week. There were 319,694 initial claims in the comparable week in 2008.

The advance unadjusted insured unemployment rate was 4.6 percent during the week ending May 9, unchanged from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 6,189,434, a decrease of 2,110 from the preceding week. A year earlier, the rate was 2.1 percent and the volume was 2,847,329.


Extended benefits were available in Alaska, Arizona, Arkansas, California, Connecticut, the District of Columbia, Idaho, Illinois, Indiana, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Vermont, Washington, and Wisconsin during the week ending May 2.

Initial claims for UI benefits by former Federal civilian employees totaled 1,174 in the week ending May 9, a decrease of 44 from the prior week. There were 1,751 initial claims by newly discharged veterans, an increase of 67 from the preceding week.

There were 15,868 former Federal civilian employees claiming UI benefits for the week ending May 2, a decrease of 553 from the previous week. Newly discharged veterans claiming benefits totaled 28,542, an increase of 21 from the prior week.

States reported 2,268,367 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending May 2, an increase of 111,851 from the prior week. EUC weekly claims include both first and second tier activity.

The highest insured unemployment rates in the week ending May 2 were in Oregon (7.4 percent), Michigan (6.9), Puerto Rico (6.6), Nevada (6.4), Pennsylvania (6.3), Wisconsin (6.2), Idaho (6.0), California (5.6), Alaska (5.5), New Jersey (5.4), and North Carolina (5.4).

The largest increases in initial claims for the week ending May 9 were in Michigan (+16,817), North Carolina (+3,783), Virginia (+2,871), Kentucky (+2,768), and Pennsylvania (+2,444), while the largest decreases were in California (-10,052), Wisconsin (-1,691), Kansas (-1,415), Oklahoma (-1,084), and Washington (-843).


Saturday, May 16, 2009

"Ten Reasons Why the Stress Tests Are “Schmess” Tests "

Nouriel Roubini has an interesting article in the Wall Street Journal (WSJ) concerning how the recently concluded Bank Stress Tests vastly underestimate the losses that the banks will take over the next 6-9 months.  This means that in order for these banks to remain solvent, they will have to raise even more capital than originally thought.

Wolfram Alpha is Coming!

A new specialized internet search engine will be operational beginning this upcoming Monday!  It is named Wolfram Alpha.

Here is a description from the website:

Wolfram|Alpha's long-term goal is to make all systematic knowledge immediately computable and accessible to everyone. We aim to collect and curate all objective data; implement every known model, method, and algorithm; and make it possible to compute whatever can be computed about anything. Our goal is to build on the achievements of science and other systematizations of knowledge to provide a single source that can be relied on by everyone for definitive answers to factual queries.

Wolfram|Alpha aims to bring expert-level knowledge and capabilities to the broadest possible range of people—spanning all professions and education levels. Our goal is to accept completely free-form input, and to serve as a knowledge engine that generates powerful results and presents them with maximum clarity.

Wolfram|Alpha is an ambitious, long-term intellectual endeavor that we intend will deliver increasing capabilities over the years and decades to come. With a world-class team and participation from top outside experts in countless fields, our goal is to create something that will stand as a major milestone of 21st century intellectual achievement.

This search engine will be great for engineers, economists, scientists, and anyone else who wants to analyze publicly available information and try to make sense of it.

For example, if you wanted to know how the median income in America has changed as a function of time...and if you wanted to know how this has changed relative to the top 1% of earners in could do that....and Wolfram Alpha would make it easy.

What is the best method for stimulating the economy?