U.S economy: Signs of digging back into recession!
By Daniel at 20 January, 2010, 1:26 am
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Tumble, Tumble, Tumble…
quote from ABC:
Current ratings of consumer confidence are in full retreat this month after moving ahead in December – and a separate measure finds expectations for the future worsening.
The ABC News Consumer Comfort Index, measuring current economic sentiment, stands at -49 on its scale of +100 to -100, 8 points lower than the start of the month and its lowest since Nov. 1. With its 6-point tumble last week, one of the sharpest one-week drops in 24 years of weekly polls, it’s within striking distance of its worst on record, -54 a year ago.
This month significantly more say the economy is getting worse, 36 percent, than say it’s getting better, 24 percent. Last month, by contrast, economic optimists equaled pessimists at 30 percent each.
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Small Investors Increase Bearish Bets
As small investors continue to pull money out of equity market funds, small speculators are continued net sellers according to the CFTC. As has been the case throughout the 60% bull market, small futures traders at the CME have been net short sellers of the S&P 500.
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quote from Bloomberg:
Confidence among U.S. homebuilders unexpectedly dropped in January to the lowest level since June, a sign the housing recovery may stall in coming months.
The National Association of Home Builders/Wells Fargo index of builder confidence decreased to 15 from 16 the prior month, the Washington-based group said today. Readings below 50 mean most respondents view conditions as poor.
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It’s getting riskier…
“Borrowing is set to surpass tax revenues as the Japanese government’s most important source of income this year, raising fears that even the slightest increase in bond yields could spark a global sovereign debt crisis.”
“Dylan Grice, a strategist at SG, warns: ‘If international investors were to demand triple the current 1.5% yield, pricing JGBs in line with international bond market peers the game would soon be up because Japan’s current debt service already amounts to 35% of pre-bond issuance revenues.
‘Next year, tax revenues will be less important than borrowing as a source of income. So I doubt there is any yield international capital markets can find acceptable that will not bankrupt the Japanese government.’”
……………………..1A) Japan Bond Risk Jumps to Nine-Month High on Japan Air, Greece
“The cost of protecting Japanese sovereign bonds from default climbed to a nine-month high amid concern that Japan Airlines Corp. may file for bankruptcy as soon as today.
Five-year credit-default swap contracts on Japan’s sovereign debt increased to 81 basis points yesterday, according to prices from CMA DataVision in New York. That’s doubled since Sept. 17 and is the highest since April 3, the data show.”
- 2) Millions needed for city pensions (San Diego)
“Just when San Diego city officials thought they had closed a $179 million budget gap, another has opened up because more money will be needed to pay for employee pensions.
The city will have to contribute $231.7 million to the retirement fund in the fiscal year that starts in July. That’s up $19 million from the forecast used when the last budget gap was closed in December.
The increase is a result of the fund’s investment losses and more employees signing up for pension benefits because of fears they will be cut.”
“A new report from the city’s pension system indicates that the city has 66.5 percent of the money it needs to cover promised pensions — the lowest level since 2004. The amount the city lacks to meet its long-term pension liability is $2.1 billion as of June 30, up from $1.3 billion in June 2008.”
“Budget consolidation will be necessary in the coming years to help maintain the stability and credibility of the euro, German Finance Minister Wolfgang Schaeuble said Tuesday, defending his first budget which foresees record new debt. ”
“Defending his government’s 2010 budget, in which more than one quarter of the EUR325.4 billion earmarked for spending will be funded with new debt, Schaeuble said that high debt this year is necessary because of the severeness of economic crisis.
But he pledged that the government would cut back on borrowing in the coming years.
He warned that without budget consolidation, inflation expectations and long-term interest rates would rise, which would push up refinancing costs.
“It is in our best interest to maintain the stability of the euro and its credibility on international markets” also in the coming years, Schaeuble said.
Germany’s budget deficit is likely to reach almost 6% of gross domestic product this year, after a deficit of 3.2% of GDP last year, he said. He said the country will fulfill its commitment to get the deficit in line with the 3% threshold set by the European Union in 2013. ”
- 4) Advanced economies: the risky rich (Nouriel Roubini)
“A weak economic recovery and an aging population are likely to increase the debt burden of many advanced economies, including the U.S., the U.K. and Japan.
More ominously, monetization of these fiscal deficits is becoming a pattern in many advanced economies, as central banks have started to swell the monetary base via massive purchases of short-and long-term government paper. Eventually, large monetized fiscal deficits will lead to a fiscal train wreck and/or a rise in inflation expectations that could sharply increase long-term government bond yields and crowd out a tentative recovery.”
“If America’s Democrats lose in November’s midterm elections, there’s a risk of persistent fiscal deficits as Republicans veto tax increases while Democrats veto spending cuts. Monetizing the fiscal deficits would then become the path of least resistance: Running the printing presses is much easier than politically painful deficit reduction.
But if the U.S. does use the inflation tax as a way to reduce the real value of its public debt, the risk of a disorderly collapse of the U.S. dollar would rise significantly. ” (Saxplayer00o1)
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People are getting poorer…
Senate GOP: Cut all public workers’ pay, benefits (AP)
AP - Teachers, professors and state and local government workers should take a 5 percent pay cut later this year and remain at that level for the next three years to help save taxpayers money, Senate Majority Leader Mike Bishop said Tuesday.
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Related reads:
U.S store closings, layoffs and bankruptcies - The Latest Casualty Count - Jan. 18 - 19
The next economic perfect storm - should start mid February.
Markets Not Facing ‘Reality’ Of Slow Economy: El-Erian
Hard to disagree with any of these points about the coming double dip recession.
- Alex Mai
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