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Sequestration Knife gets Sharpened

Sequestration Knife gets Sharpened
Geithner on Creating Crises
Italian Elections Scare Us All

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  • Fourth Quarter GDP Revised Up From -0.1% to 0.1%… The measure of overall U.S. production in the last      quarter of 2012 was revised slightly higher, from a minimal loss to a      minimal gain.

    This means nothing… or everything, depending on how you look at it. A      change of 0.2% means the underlying components like imports, government      spending and inventories were slightly massaged. Who cares? But in the      larger picture, this number speaks volumes. The best we can do is 0.1%      growth? That’s what we got for another $85 billion in money printing?      That’s what we got for a government that is borrowing $1 of every $3 it      spends? I’m not sure how much more of this good news we can take.

  • Fed Tells Market To Go Higher… In his prepared statements to Congress, Fed Chairman      Ben Bernanke expressed concern that last week’s comments surrounding the      possibility of less Fed intervention caused a selloff in the markets. This      put in jeopardy bankster bonuses, lobbying dollars that have flowed to      Washington, as well as his own credibility as a master economic magician      able to levitate anything he wants. So Bernanke quashed any notion of an      early exit… or really any exit at all… from QE. The markets promptly      returned to the nosebleed section, based on nothing more than the words of      a man with a printing press in his pocket. OK, the part about him being      mad at the markets for moving lower is something I made up. I think. Sure      seems likely though.
  • Durable Goods Up 1.9%… The measure of the purchase of goods that last more      than three years, less transportation (airplanes), increased by almost 2%.

    Finally – a good, clean number! Durable goods are things like cars and      washing machines. To see the purchase of such items rise is a good sign.      To note that the U.S. manufacturing of such items is picking up at the      same time is also a good sign. If you want to know where the action is,      pull up a map of shale gas exploration and recovery. Rents are high,      unemployment is low and car dealership sales are brisk in those areas.

  • Chicago PMI Up From 55.6 to 56.8… The purchasing managers’ index for the Chicago region      is well above neutral, which is 50. Managers indicated growth in orders as      well as backorders.

    Like the durable goods figure, this is a positive sign. What must be      remembered about PMI indices is that they are diffusion indices. These      numbers represent how many purchasing managers are answering questions      positively or negatively about a lot of different aspects of business      (backorders, new orders, inventory, prices paid, employment, etc.). Such      measurements do not tell us the quantity of items being reported. Every      manager could report a rise in orders, but if the rise is minimal for all,      then it’s not very significant. To see the number over 56 and moving      higher is good. We need confirmation of this through a better jobs report      (announced on 3/8) and then GDP growth for the first quarter as well.

  • New Home Sales at 437,000 Annual Pace, Well Above      Expectations… Annual new home sales surged      past expectations of around 390,000 and posted the highest number in      years.

    There is no doubt that housing is important, particularly new housing,      because of all the inputs for construction. That is why this number is not      a cause for celebration. New home construction was around 650,000 units      per year in the early 1990s. The number marched higher and hit a plateau      of around 900,000 units per year in the early 2000s. The peak was 1.4      million units in 2005, which then fell to a trough of just over 300,000 in      2011. To have the number now poking above 400,000 is good, but it’s a long      way from stoking the fires of employment. At the same time, this number      was seasonally adjusted higher far beyond what has been done in previous      January reports. There is a distinct possibility that capital gains taking      in December 2012 (before tax rates changed) led to a lot of activity in      home sales that would naturally translate into home buying in January.      This is one month. We’ll see what the future brings.

  • Consumer Debt Ticking Back Higher… Remember just a few years ago, when we had a huge debt      crisis? Yep, so do I. It might seem logical that, after such a crisis, the      last thing anyone would want is, well, debt. That is sort of true, and      sort of not. Total consumer debt is actually moving a bit higher, even      though mortgage debt (mortgages and HELOCs) is down. In fact, credit card      debt is down, too. There is only one category moving up at light speed,      student loans. We now have more than $1 trillion in student loans      outstanding, while credit card debt is down to roughly $675 million. At      this rate, our economy will have twice as much student-loan debt      outstanding as we do credit card debt by the end of this calendar year.      What’s more, 90-plus-day delinquencies on student loans are now higher      (12%) than the same delinquency rate on credit card debt. Exactly how is      this supposed to end well?
  • Sequestered Budget Cuts Are Here… The two parties could not agree on how to adjust, stop      or otherwise amend the sequestered budget cuts that are a requirement of      the 2011 debt-ceiling agreement. Per the agreement, the U.S. will face 9%      cuts in discretionary spending programs across the board without the      benefit of agencies or departments being able to choose what to cut. This      is a lot like going to a school and demanding every classroom and      administrative department cut 9% instead of simply discontinuing an AP      class or a music program. The sequestered cuts are stupid in application,      and they are the best we can do, which is sad.
  • Tim Geithner to Give Financial Crisis Seminars… Our former Secretary of the Treasury is moving to his      next gig. He will lead seminars about financial crises on college      campuses. This makes perfect sense. Geithner ran the New York Fed for six      years before joining the Treasury Department, so he has intimate knowledge      about how to create a financial crisis. This knowledge is enhanced by his      time at Treasury where he gave billions in handouts to banks, insurance      companies, and union-backed corporations, then demanded that the central      bank steal from citizens through the continued printing of new currency      which, by way of regulation, all gets handed back to the Treasury for      free. I can’t think of a better person to speak on the subject of      financial crises. The only thing that would make this better is if he      added on a course about how to compute your personal taxes.
  • Italian Elections Scare the World… The Italian      elections saw the return of Berlusconi, the rise of Bersani and the      introduction of Grillo. These three factions have to work out a coalition      or else the Italian government will grind to a halt.

    It was bound to happen. Eventually one of the euro zone nations of      southern Europe was going to see its population strike back. They are      tired of bearing the brunt of the payoff for bank failures. They are tired      of tax hikes, job losses, benefit cuts and a lot of blabbering out of the      European Central Bank about how great things are. We don’t expect this      type of voter reaction to stop here. Instead, this should simply be the      beginning of the backlash as citizens in other European countries pass      judgment at the ballot box in the months and years to come.

  • This Week…      will be quiet when it comes to economic data reports, but it ends with a      bang. On Friday, March 8, the U.S. releases its employment report for      February. The trend has been an increase of around 160,000 jobs per month,      which is barely enough to keep up with our population growth. We      anticipate this report showing a just a touch of strength, but this is      before the sequester. Look for unemployment to tick up in the months to      come.
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