Monday, June 20, 2011

notes on the week ended june 18th

the generally weak reports we've seen in previous weeks continued this week, although the decline in retail sales, driven mostly by lower car sales, of only .2%, was less than expected; the reuters/UofM consumer confidence index declined from 74.3 in may to 71.8 this month, a couple regional Fed surveys indicated contraction, and small business sentiment and hiring plans also declined...with most of the 2nd quarter economic activity now pretty apparent, goldman sachs cut its forecast for 2nd quarter GDP from 3% to 2%, macroadvisors lowered their 2nd qtr forecast to 1.9% from 3.5%, and the IMF cited slowdowns in the US and Japan in revising their forecast for global growth downward...the IMF now expects our growth to come in at 2.5% for this year and 2.7% in 2012, which does not bode well for bringing the unemployment rate down...although the WSJ econ blog imagined to gain some special insight from the fact that google searches for "double-dip" recession had spiked last week, i havent seen much use of that terminology in the econoblogosphere; by far the most common expression i've noticed has been to refer to current conditions as a "soft patch", which sounds like something you might want to jump into to take a nap...which may be the course we're on: we know there will no stimulus coming from a gridlocked deficit obsessed congress, & the Fed's purchase of Treasury debt will be ending on june 30th...and since core inflation, the measure with food and energy stripped out & that the Fed uses, rose 0.3% from april to may, the most in one month since 2006, it has now become even more unlikely that further monetary stimulus will be in the offing...there is a perversity in that core measure, however; the housing component is 42% of it, but in 1983 it was changed to reflect rental equivalent housing; so despite the fact that home prices are falling, rents are rising, as rental units are in short supply, driving that core inflation rate up...but if there's one thing we know about the Fed, its that they stick by their rules, no matter how obtuse they may be...

as i mentioned, our congresscritters continue to be gridlocked in wrangling over the debt ceiling extension...most reports have medicare and social security off the table, but medicaid, the federal-state program that provides medical care for the poor, disabled and indigent, may be the bargaining chip they can agree on, as both parties are in favor of screwing the poor...so we might expect to see more street people showing up at hospital emergency rooms if that's what gets cut...and in what had to be a senile moment for the AARP board, they advised the WSJ that they realized cuts would have to be made to social security, even though the CBO has indicated the program is fully funded until 2037 and 90% funded thereafter...in light of the congressional gridlock on the debt, banks are moving to cash in order to cut their use of US Treasuries before august, as a precaution against possible market runs that might occur should congress fail to agree by then...and in a sure sign that the markets believe that congress may never come to its senses, by wednesday the cost of CDS to insure US 2 year debt was higher than that of the cost to insure the same for brazil or italy..

the adjacent map is from a very thorough article at joe romm's climate progress which tells us that the U.S. Had Most Extreme Spring on Record for Precipitation; not a surprise to me, or to those who lived through it in the 9 states in dark green which set all time records for rainfall; and it's probably not a surprise to those living in texas that they experienced their driest 3 months in the 117 year record, either, as drought conditions there still persists...you know about the earlier mississippi flooding, but notice the well above average precipitation totals in the northern rockies; much of that fell on a snowpack which was as much as 22 feet deep and the snowmelt & runoff is now contributing to record flooding on the missouri river, which is now threatening the fort calhoun nuclear plant near omaha; as of friday, missouri river water levels at the plant were given at 1005 feet, and the plant is surrounded by a 2,000-foot long berm that takes the protective level to 1,010 feet, or five feet above the current river level; however, the same storm system that spawned the joplin tornado also dumped unprecedented rainfall in eastern montana; in that one storm some areas got over 9 1/2 inches, nearly a year's worth of rainfall, & that was falling on a snowpack which was still 7 feet deep in places...so the upper missouri remains at flood stage, all the dams are filled & forced to spill water downstream, the river is now expected to crest 5 feet higher at the nuclear plant, and this plant, which the operators claimed was built to withstand a "500 year flood", is now being sandbagged...the flood condition on the missouri is expected to persist all summer, and there is concern that any of the aging dams upstream could suffer degradation from the extreme river flow conditions... similar aging infrastructure problems persist around the country, yet unemployment among construction workers remains around 15%, but our political gridlock leaves us no way to put 2 and 2 together...

a surprising study of US life expectancy by county released this week revealed that people in some counties in Appalachia and the deep south lagged the national average considerably, and were likely to die as much 15 years sooner than those in the healthier US counties, and were worse off than those born in honduras or el salvador; overall, the US life expectancy ranked 38th worldwide, now behind countries such as costa rica and martinique, & in some parts of the US, people are dying younger on average than their counterparts in nations such as Syria, Panama and Vietnam, despite our spending more per capita on health care than any other country in the world...the prime cause given for the fall in US life expectancy is obesity...

a potential rare earth shortage was in the news again this week, as prices of many or the metals used in high tech equipment were reported to have doubled over the past two weeks after china further restricted exports; dysprosium oxide, for instance, used in magnets, lasers and nuclear reactors, rose to about $1,470 a kg from about $700, & europium oxide, used in plasma TVs, also doubled in price...so expect the cost of hard drives to rise accordingly...if you recall, china has a virtual monopoly on production of these elements, which are actually common in the earth's crust, but as they take dozens of washings of the ores in acid to extract, they leave the mined areas badly degraded, and other countries have been willing to let china suffer the environmental consequences...

the week in europe began with S&P assigning greek government debt the world's lowest credit rating, and borrowing costs for the PIGS rose almost daily through most of week, with greece's 2 year rate approaching 30%...for a while it looked like i'd be telling you about some kind of greek default or restructuring, as the parties to the negotiations remained at an impasse, greek strikes brought the country to a standstill, & members of the prime minister's party resigned in protest of the bankster troika's imposed austerity measures, but at the last minute the IMF blinked, and then angela merkel agreed to a "voluntary" rollover of greek bonds, so it appears they've succeeded in kicking the can down the road to july, when we get to do it all over again...

there was something else in europe that i was curious about, though, so i followed up...iceland, which by public referendum had last year told the british & dutch banks to stuff it & refused to bail out their banks, floated a five year bond on thursday at 3%...i had thought iceland was supposed to be a pariah, but here they are borrowing at rates comparable to the core of europe...so i ran a quick & dirty google comparison between iceland, which defaulted, and the PIGS, which imposed austerity at the behest of the IMF & the ECB; iceland's unemployment is 7.1%; for greece, it's 15.9%, for ireland, it's 14.8%. for spain, it's 21%, & for portugal, its 12.6%...icelands GDP is expected to grow at 2.3%, while ireland's is .6%, spain's is .7%. greece is negative 3%, and portugal's GDP is expected to fall 1.3%; as ive noted, iceland can borrow at 3%; borrowing costs for greece remain above 28%, for ireland, over 12%, for portugal, 13%, and spain, 5.6%...shows you what austerity will do for a country...

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me...

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