This was a bad month for jobs in the USA. Not only did the U.S. Bureau of Labor Statistics report that the number of jobs remained at the same level as last month (125,000 additional jobs are needed for population growth, on average and we have huge losses from the credit crisis recession that have to be gained back) the last 2 months were revised down. The change in total nonfarm payroll employment for June was revised from
a gain of 46,000 to a gain of 20,000, and the July was revised down from gaining 117,000 job to gaining
85,000. That results in a total loss for this report of 58,000.
Still much better than the huge losses of several years ago but, along with the last few months, not a good sign for short term job growth. And the failure to address decades of favors given by politicians to too big to fail banks may actually create serious problems much sooner than most people feared. Pretty much everyone knew that the failure to address the main cause of the credit crisis was setting us up for again having the economy suffer huge blows due to the behavior of too big to fail institutions but I, and I think most people, thought it would be at least 5 years away and maybe even 10 before we had to seriously pay for the failures of our politicians to address this problem they (and their predecessors created).
It really seems like politicians don’t understand that their predecessors (decades ago) could afford to payoff large political donors and avoid dealing with problems and the enormous amount of wealth the economy was generating would let us prosper (even with lousy leadership), but that is no longer the case. The USA has used up huge economic advantages and that easy time is not coming back. Sadly the main hope for the USA is that other countries leaders create enough waste that the USA can remain competitive with all the waste our create (extremely lousy health care system, for example). It seems the American public doesn’t understand either, if anything we are electing even less intelligent and capable leaders today (over the last 10 years).
The USA has 14 million unemployed. Among the major worker groups, the unemployment rates for adult men was 8.9%, adult women 8.0% and teenagers 25.4%, whites. Of those 14 million the number of long-term unemployed (those jobless for 27 weeks and over) was about unchanged at 6 million in August.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.4 million to 8.8 million in August. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour over the month to 34.2 hours. The manufacturing workweek was 40.3 hours for the third consecutive month; factory overtime increased by 0.1 hour over the month to 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged down to 33.5 hours in August, after holding at 33.6 hours for the prior 6 months.
As bad as this news is, it could be much worse. The economy is actually growing (very slowly), probably. Many companies are actually still very profitable (I am not counting companies that have fake profits with congress approved ability to report fake values for their assets – Congress granted their too big too fail donors, this, and many other favors while most others are left out in the cold). The wealth in the USA, even after we have been consuming our capital to live beyond what we earn each year (for decades) is still extremely high. This allows us to live well and invest even with many bad practices in place. We continue to have many excellent companies doing great work and providing great jobs. Even with all the problems in the USA there are few countries that are in as enviable an economic position. The biggest problem I see is we have been squandering those advantages far too easily and quickly for far too long. That leaves us much more economically venerable than we need to be.
Related: Paying Back Direct Cash Bailouts from Taxpayers Does not Excuse Bank Misdeeds – USA Unemployment Rate at 9.6% (after losing 54,000 job in Aug 2010)
There are many good economic reasons to have multi-generational (at least 3 generations) households. There are some good social reasons too. There can be interpersonal benefits but also annoyances (which I think is why they decreased – plus we could afford it, the USA was living extremely richly).
The Return of the Multi-Generational Family Household
…
This represents a significant trend reversal. Starting right after World War II, the extended family household fell out of favor with the American public. In 1940, about a quarter of the population lived in one; by 1980, just 12% did. A range of demographic factors likely contributed to this decline, among them the rapid growth of the nuclear-family-centered suburbs; the decline in the share of immigrants in the population; and the sharp rise in the health and economic well-being of adults ages 65 and older.
…
Another factor has been the big wave of immigration, dominated by Latin Americans and Asians, that began around 1970. Like their European counterparts from earlier centuries, these modern immigrants are far more inclined than native-born Americans to live in multi-generational family households.
However, the trend reversal has also played out among native-born Americans. And for all groups, the move into multi-generational family households has accelerated during the Great Recession that began at the end of 2007.
The percentage of the population in such households now is 16%, still significantly below the high of 24.7% in 1940.
Related: Mortgage Rates Falling on Fed Housing Focus – Personal Finance Basics: Long-term Care Insurance – Bankruptcies Among Seniors Soaring (2008)
The report on employment released today was not good news but it was less bad than feared. Total nonfarm payroll employment rose by 117,000 in July, and the unemployment rate was little changed at 9.1%, the United States Bureau of Labor Statistics reported today. Employment growth in July, follows little growth over the prior 2 months. Total private employment rose by 154,000 over the month. Sectors experiencing growth include: health care, retail trade, manufacturing, and mining. Government employment continued to trend down.
Some good news is found in the adjustments to the last two months job numbers. The change in total nonfarm payroll employment for May was revised from +25,000 to +53,000, and the change for June was revised from +18,000 to +46,000. That adds 56,000 jobs to the 117,000 jobs added in July and brings to the total for this report to 173,000 additional jobs. Still not great but much better than the last 2 months. The economy needs to add 125,000 a month to keep up with population growth.
And currently the economy needs to add much more to make up for all the jobs lost due to the too big to fail institution created credit crisis. The damage done to the economy by those institutions and continuing to be done in order to support those companies remains enormous. I believe we need to see 230,000 jobs added a month consistently (in order to be making ground up for the damage done), before we can believe we are doing well.
Remember it was just over 2 years ago we were losing hundreds of thousands of jobs a month. We are doing much better now, but fixing how broken things were is not easy. Between January of 2008 and February of 2010, the economy lost 8.75 million jobs. Since February 2010, 1.94 million jobs have been added. That means we have still lost 6,810,000 jobs and when you consider we have to add 125,000 a month to keep up we have 43 * 125,000 = 5,375,000 we haven’t added bringing a the total of jobs needed to over 12,000,000 (the number we need to add to get back to where we were). But truthfully we probably were at a bubble induced level at the peak so 12,000,000 is probably an overestimate of how many jobs we need to gain back.
Read more
Although we usually write about investing advice, today we’re going to head in a slightly different direction and look at some entertaining films about the financial credit crisis. Hollywood was a bit slow, to get these movies released but now the movies on the crisis are coming quickly. Attempting to recover from the credit crisis is still dominating the economies of Europe and the USA.
Gold has been performing quite well as the markets worry about the aftermath of the credit crisis and the large amount government debt in many rich countries. Movies can provide some distraction from the worries about whether we should avoid risks in of the the stock market at the moment, if it’s a good idea to invest in gold via bullionvault.com or whether BRIC countries might really be where the action is. Movies certainly will have their version of action.
A popular movie about the financial crisis is ‘Inside Job’ (clip above). Directed by Charles Ferguson, who’d previously made the highly acclaimed ‘No End In Sight’ about the Iraq war, and given a voiceover by Matt Damon, the film won the Oscar for documentaries in 2011. It gained positive reviews all over the world for it’s simple explanations of a very complex topic.
Meanwhile on the other side of the Atlantic ocean, British director David Sington made ‘The Flaw’. This flaw in question refers to the admission by Alan Greenspan (former Federal Reserve Chairman) that his model of how the world works did not match up to the weird and wonderful nature of reality. Greenspan admitted that had mistakenly put too much faith in the self-correcting power of free markets. The film has not been as widely reviewed as Inside Job, but The Economist said that while it is unbalanced, it is worth a watch.
Wherever there is an obvious political point to be made, there is sure to be Oliver Stone not far behind yelling it out. ‘Wall Street: Money Never Sleeps’ stars young Shia LaBeouf as a Wall Street trader learning from the master: Gordon Gecko. The film even has a few cameos from figures from the financial world and is generally thought of as a good beginners guide to the crisis.
Finally, two films currently in production that look at the crisis. Firstly, Paul Giamatti will be starring in the fictionalization of Andrew Sorkin’s best selling investigation into the crisis, Too Big To Fail. George Clooney is also reportedly getting in on the act with ’700 Billion Man’, centred on Neel Kashkari, a one time Goldman Sachs executive who helped build the gigantic Troubled Asset Relief Program, aka the financial bailout.
We can’t guarantee these films will be balanced, but they should be interesting. Enjoy.
While Europe’s financial crisis continues India grew GDP by 8.6% in the first 3 months of 2010. China continues to grow quickly as do many emerging countries, including Brazil. India’s Q4 GDP grows at 8.6% y-o-y
India’s economy had grown 6.7 percent in 2008/09, and the Jan-March 2009/10 growth rate matches the revised data for the second quarter of 2009/10.
…
Manufacturing output grew 16.3 percent on year in the quarter as consumers bought more cars and other goods, while farm output grew an annual 0.7 percent helped by a good winter harvest. The government expects the economy to grow 8.5 percent in the current fiscal year that started on April 1 on the prospects of a better farm output and a global recovery
…
The farm sector, which forms nearly 17 percent of the economy but is dependent on monsoon rains, is expected to do well in 2011 as the weather office has predicted a normal monsoon for the country. Prime Minister Manmohan Singh last week said an annual economic growth rate of 10 percent is needed in the medium term to address the problems of poverty and malnutrition.
Even as Singh aims for high economic growth, inflation has come to haunt his government and appears to be undermining its support base. Wholesale prices, the most closely watched inflation gauge in India, rose 9.59 percent in April from a year earlier amid the government officials claim that headline inflation had peaked.
Headline inflation numbers have been consistently higher than the official forecasts. The wholesale price inflation vaulted above the RBI’s end-March 2010 inflation forecast of 8.5 percent in January and crossed the 10-percent mark in February.
Although food price inflation has eased from its peak of 20 percent in December, it is still above 16 percent. Rising cost pressures are also dragging down the pace of manufacturing growth, as evidenced by a second-straight monthly decline in the HSBC Market Purchasing Managers’ Index in April. The rapid acceleration in the world’s second-fastest growing major economy after China is boosting consumer demand far ahead of what can be met by existing supply capacity.
The economies of India, China, Brazil, Mexico, Thailand, Vietnam… are still a fairly small fraction of global GDP but their share continues to grown. And the next few years look to continue this trend. Keys to how quickly they grow their share of global GDP are avoiding bubbles (which then burst), avoiding excessive government debt, continuing to build strong infrastructure for continued development and to what extent growth slows in Europe, USA and Japan due to the credit crisis and excessive consumer and government debt.
The emerging economies have done a good job avoiding the credit crisis failures visited by the large banks on the wealthiest economies but the dangers of slipping up are large and costly. The largest economies have lots of wealth even after allowing bankers and wall street to siphon off huge amounts for themselves. Less wealth economies will suffer much more than the wealthiest countries if they fall prey to the same political and economic failings. And those special interest (crony capitalism) favors are no less (I would say even more, in fact) likely in those countries than they are in the richest countries.
Related: The Relative Economic Position of the USA is Likely to Decline – Easiest Countries for Doing Business 2008 – Why Investing is Safer Overseas
The fallout of the credit crisis continues. The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 10.1% percent of all loans outstanding as of the end of the first quarter of 2010, an increase of 59 basis points from the fourth quarter of 2009, and up 94 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 106 basis points from 10.4% in the fourth quarter of 2009 to 9.40% this quarter.
The percentage of loans on which foreclosure actions were started during the first quarter was 1.23%, up 3 basis points from last quarter but down 14 basis points from one year ago.
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 4.63%, an increase of five basis points from the fourth quarter of 2009 and 78 basis points from one year ago. This represents another record high. The combined percentage of loans in foreclosure or at least one payment past due was 14.0% on a non-seasonally adjusted basis, a decline from 15.0%.
The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 9.54%, a decrease of 13 basis points from last quarter, but an increase of 230 basis points from the first quarter of last year.
“The issue this quarter is that the seasonally adjusted delinquency rates went up while the unadjusted rates went down. Delinquency rates traditionally peak in the fourth quarter and fall in the first quarter and we saw that first quarter drop in the data. The question is whether the drop represents anything more than a normal seasonal decline or a more fundamental improvement. Most importantly, the normal seasonal drop is coming right at the point where we believe delinquencies could potentially be declining and the problem for the statistical models is determining which is which,” said Jay Brinkmann, MBA’s chief economist.
“The seasonal models say it is not a fundamental improvement and that the seasonal drop should have been larger to represent a true improvement, hence the increase in the seasonally adjusted numbers. Yet there is reason to believe the seasonally adjusted numbers could be too high. Simply put, fundamental market factors may be having a greater influence on the delinquency rates than is normally the case, but mathematical models have difficulty discerning the difference over a short period of time.
“Since discerning what represents a fundamental improvement versus a simply seasonal improvement is probably more of an art than a mathematical science at this point, the seasonally adjusted numbers should be viewed with a degree of caution.
The seasonally adjusted delinquency rate increased for all loan types with the exception of FHA loans. On a seasonally adjusted basis, the delinquency rate stood at 6.2% for prime fixed loans, 13.5% for prime ARM loans, 25.7% for subprime fixed loans, 29.1% percent for subprime ARM loans, 13.2% for FHA loans, and 8.0% for VA loans. On a non-seasonally adjusted basis, the delinquency rate fell for all loan types.
The foreclosure starts rate increased for all loan types with the exception of subprime loans. The foreclosure starts rate increased six basis points for prime fixed loans to 0.7%, 17 basis points for prime ARM loans to 2.3%, 18 basis points for FHA loans to 1.5%, and 8 basis points for VA loans to 0.9%. For subprime fixed loans, the rate decreased nine basis points to 2.6% and for subprime ARM loans the rate decreased 39 basis points to 4.3%.
Predicting is much harder than explaining past data. But I believe the odds for better reports on foreclosures and delinquencies over the next 12 months. Delinquencies may well rise. But it is certainly possibly things will get worse. And if the jobs added each month doesn’t average close to 200,000 things will likely not be very good. My guess is we will add over 2.0 million jobs in the USA in the next 12 months but that is far from certain.
Related: Real Estate and Consumer Loan Delinquency Rates 1998-2009 – Another Wave of Foreclosures Loom (July 2009) – Nearly 10% of Mortgages Delinquent or in Foreclosure (Dec 2008)
Charlie Munger’s Thoughts on Just About Everything by Morgan Housel
Benjamin Graham used to say, “It’s not the bad investment ideas that fail; it’s the good ideas that get pushed into excess.” And that’s a lot of what happened here.
Some economic distortions come from the masses believing that other people are right. Others come from the need to make a living through behavior that may be less than socially desirable. I’ve always been skeptical of conventional wisdom. You have to be able to keep your head on when everyone else is losing theirs.
…
Take soccer as an example. It’s a tremendously competitive sport, and often times one team tries to work mayhem on the other team’s best player. The referee’s job is to limit this mayhem and rein in extreme forms of competition.
Regulation is similar. Most ambitious young men will be more aggressive than they should. That’s what happened with investment banking. I mean, look at Lehman Brothers. Everyone did what they damn well wanted until the whole place was pathological about its extremeness.
…
A lot of this [financial collapse] can be blamed on accountants. Accountants as a whole have been trained with too much math and not enough horse sense. If some of these insane accounting practices were never allowed, huge messes could have been avoided. Bankers have become quite good at manipulating accountants
…
Learning has never been work for me. It’s play. I was born innately curious. If that doesn’t work for you, figure out your own damn system.
More good thoughts from Warren Buffett’s partner at Berkshire Hathaway.
Related: Buffett and Munger’s 2009 Q&A With Shareholders – Berkshire Hathaway Annual Meeting 2008 – Misuse of Statistics, Mania in Financial Markets – Leverage, Complex Deals and Mania
To me, the prospects of a Euro currency surviving over the long term were not helped this week. The markets have behaved as though some great solutions have been adopted but it seems to me the fundamental problems if anything are worse now. It is true the short term is more stable. But at what cost?
Bailout Is ‘Nail in the Coffin’ for Euro, Rogers Says
“I was stunned,” Rogers, chairman of Rogers Holdings, said in a Bloomberg Television interview in Singapore. “This means that they’ve given up on the euro, they don’t particularly care if they have a sound currency, you have all these countries spending money they don’t have and it’s now going to continue.”
…
“It’s a political currency and nobody is minding the economics behind the necessities to have a strong currency,” Rogers said. “I’m afraid it’s going to dissolve. They’re throwing more money at the problem and it’s going to make things worse down the road.”
This makes sense to me. The problems with the Euro also explain why the dollar hasn’t fallen more over the last few years. The only significant alternative is the Yen. The BRIC countries (Brazil, Russia, India and China) are looking to increase the profile of their currencies supposedly – or even forming their version of the Euro (I can’t see how that could happen).
…
[Rogers suggests] Investors should instead buy precious metals including gold or currencies of countries that have large natural resources, Rogers said. Among other asset classes, he favors agricultural commodities as the best bet for the next decade as well as silver because prices haven’t rallied.
It is very difficult for the politicians in the USA, United Kingdom and other countries to behave fiscally responsible when their taxpayers will eventually have to pay the bill. When you can hope to have others bail you out it seems that much less likely people will behave responsibly. Then again I was skeptical the Euro would be created without first having more consolidation of European governments. There are lots of good things about having the Euro, but in the long run there are very challenging issues to deal with.
Related: Jim Rogers on the Financial Market Mess – Why the Dollar is Falling – A Bull on China
The credit crisis has shown the lack of political (or regulatory) skill, ethics and character that the USA has now. The solutions are not simple. Some are obvious, like limiting leverage, not providing huge favors to those that pay politicians huge amounts of cash… While Canadian banking regulators actually did their jobs well it is hard to believe most any American regulators will do well given the last 20 years of failures. Raghuram Rajan provides some interesting thoughts on potential improvement in: Making Debt Holders into Watchdogs
Some banks – such as Citibank, Lehman Brothers, and Royal Bank of Scotland – loaded up on both risks, holding enormous quantities of mortgage-backed securities on the asset side and paying for them with short maturity debt on the liability side. Why did they do it? The simple answer: It was very profitable, provided the tail events did not materialize. Think of insurers that write a lot of earthquake policies (another tail risk). If you didn’t know they were writing earthquake insurance and not setting aside reserves, you would think they were enormously profitable until there’s a quake. For banks, there was always the threat of a day of reckoning when liquidity dried up and defaults skyrocketed. But they set aside few reserves against that happening.
…
Particularly worrisome, as my colleague Douglas Diamond and I have argued, is that once banks are leveraged enough that they will be severely distressed if economywide liquidity dries up, they double down on risky bets.
…
Here’s the drill: To make it harder for tail-risk-taking banks to grow, all banks should be required to issue a minimum level of debt (say, 10% of assets) that is automatically impaired – either converted to equity or written down – if the bank suffers sufficient losses. This will quickly change debt holders’ views on risky expansion. Moreover, no financial institution should be allowed to hold this debt.
Related: Why Congress Won’t Investigate Wall Street – Scientists Say Biotechnology Seed Companies Prevent Research – Drug Prices in the USA
Many people are ignoring huge costs (to the economy) and benefits (to those financial companies that ruined so many people’s lives and severely damaged the economy. Paying back money the government paid you is not that same as being innocent. While several of the too big to fail banks have paid back the direct cash they were given that is not an indication they are now off the hook for their disastrous behavior.
First we know that much of the money “sent to AIG” just went directly to Goldman Sachs and others. Those big banks had taken risks and the only way those risks paid off was with billions from taxpayers. Without that they would have been bankrupt. And then when they paid the money they received directly they still haven’t paid back the billions they got from taxpayers (via AIG). And this money was paid back at 100 cents on the dollar though those instruments were trading for much less in the market (the government certainly would have found a less costly solution but for ignorance or a desire to reward their former company and friends at Goldman Sachs.
Second, rates have been kept artificially low, to among other things, allow the big banks to make tens of billions (and costing savers tens of billions). Those savers have not been reimbursed for the losses caused by the big banks.
And third if I gamble with money from my company and win my bet on the Super Bowl and then put the money back, I am still not innocent. Just because many of the big banks have paid back the money they were given directly by taxpayers does not mean they didn’t get huge benefits from the government. Pretending they are not bad guys because after ruining the economy, costing millions of people their jobs and savings, getting many benefits from the government, they then pay back the direct cash payments is not accurate.
Response to: The New Bank Tax
Related: Elizabeth Warren Webcast On Failure to Fix the System – The Best Way to Rob a Bank is as An Executive at One – Failure to Regulate Financial Markets Leads to Predictable Consequences – Jim Rogers on the Financial Market Mess – Congress Eases Bank Laws (1999)