Monday, May 04, 2009

Economic Anticipation


In recent weeks, there has been nearly an 1,800 point recovery in the Dow Jones Industrial Average from 6547 to over 8200... going over 8300 this morning... 26%. At the same time, the price of oil has gone from about $46 per barrel to $53 per barrel... 15%.

When you compare that with other economic indicators such as national unemployment which rose from 7.6% to 8.5% [Jan. through Mar.] or ...

Ranks of Discouraged Workers and Others Marginally Attached to the Labor Force Rise During Recession

Issues in Labor StatisticsThe number of persons who were marginally attached to the labor force increased sharply during the current recession.
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you begin to appreciate that, as a nation, we are hoping for change... and willing to bet our remaining dollars that it will be positive change.

History may be on our side. Despite the fact that industrial icons such as General Motors and Chrysler may be in deep financial distress which may lead to a partial collapse of the domestic auto industry, there is confidence by Wall Street and oil traders that there will be plenty of cars and trucks being sold and driven to warrant their optimism.

Nevertheless, it may be prudent to recognize what can happen when the rug is pulled out. Gary Indiana was a thriving area until the domestic steel industry collapsed.

Detroit Michigan is collapsing as the automotive industry collapses.

But when the basis of a country's economy becomes porous and deficient... banks collapse, investments collapse, savings disappear... even whole countries can run into more than a "recesssion"...

There are tipping points. The U.S. economy has not reached a tipping point, but there are large "wobbles" in several sectors. Growth in health care services is not a future saver, it is more like a snake eating its tail... as is greater and greater national debt. Sooner or later payment comes due. When the Garys and Detroits fail, the economic infection can spread.

Rather than increasing the difficulty of doing business in the U.S., our local, state, and federal governments need to address the regulatory, tax, and policy burdens that lead to the destruction of the Garys and Detroits. Iceland is an example of a nation that looked to financial manipulation as its future... and got the future that comes with it.

Our country is putting more and more of its eggs into the federal government basket with the hope that the economy will respond well to the dictates of that government... or the fear that the dictate will be to go into bankruptcy.

The question is whether this rise in the DJIA and oil prices portends a better future or is simply irrational optimism. Let's hope it is the former. Regionally, in Michigan, it is the latter.

Oil prices ease after rally

Futures fall below $53 a barrel as positive economic news vies with weak demand and supply concerns.

By Ben Rooney, staff writer


NEW YORK ( -- Oil prices fell Monday morning, after a big rally in the previous session, as investors weighed positive economic signs against ongoing concerns about weak demand and record-high inventories.

Light, sweet crude for June delivery was down 49 cents to $52.71 a barrel in pre-market, electronic trading. The contract jumped more than $2 a barrel Friday.


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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)