In the past 3 years, the Federal Reserve’s balance sheet has expanded by $1.5 trillion yet nominal GDP has managed to rise by only $500 billion. Moreover, the U.S. public debt has exploded by about $5 trillion over that same time frame. This means that while the USA is 244 years old, over 1/3 of the national debt has been created in just the past 3 years.
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Money, Money, Money….
Despite recent enthusiasm real incomes are under pressure. With the 0.5% hike in the December U.S. CPI, real wages fell 0.4% and have fallen in 3 of the 4 last four months. The pace over the past 6 months is now running just 0.15% above zero; way below the 3.6% trend of mid-2010 & the annualized 3-month trend is even worse. No matter how you slice it, wage growth is dramatically slowing and is barely positive
The stock market is Too High
Measures of investor sentiment are irrational―the bear share in the latest Investor Intelligence poll is down to 19.1% from 20.5% last week. The bull camp is all the way up to 57.3% from 54.5%. Back on Labor Day, the Investor Intelligence survey flashed 29.4% bulls and 37.7% bears. Now, with 20/20 hindsight, we know what represents a nice buying opportunity and what doesn’t.
Decennial Census
From the recently released Decennial Census we see that 7 of the 9 states (AK FL NH NV SD TN TX WA WY) that do not levy an income-tax grew faster than the national average. And, the other two ND and NH had the fastest growth in their regions (Midwest and New England). Altogether 35% of the nation’s population growth occurred in these 9 income tax-free states which account for about 20% of total population.
Lots of People are Asking Why…
If profits are booming why aren’t jobs plentiful? Well, from what I can tell the bulk of earnings this cycle were derived offshore and since U.S. companies get “dinged” on earnings they remit home what happens is that the foreign-derived income stays exactly where it is earned―abroad!! Fixing the corporate tax code will help. Anybody paying attention on Capitol Hill?
Companies Sad Strategies
In December’s employment Report, temp agency employment rose 16k, up now for five months in a row, & ended up accounting for about 30% of the total employment growth in the economy last year. Sadly, what was once a good leading indicator of future labor demand is now just a sign of the times―a “just in time hiring” strategy for companies that continue to focus on cost cutting to drive their bottom line performance.
Credit Default Swamps
Based on my calculations, credit default swaps are trading as if Greece has a 70% chance of defaulting, 50% for Ireland, 40% for Portugal and 30% for Spain. Both Greece and Ireland are paying over 80% of their export revenues towards external debt payments which totally unsustainable. After Portugal, Spain is next, then maybe Belgium. This story is as contained as the Asian crisis was limited to Thailand 12 years ago.
3 Major Points in Yesterday’s Employment Report
1) Workweek didn’t move; it’s stuck at 34.3 hours for the 3rd straight month. History says hours lead bodies so as a leading indicator there isn’t much evidence of improving labor demand 2) State & local governments are downsizing with 20k net job losses 3) Personal income data was very disappointing with average hourly earnings barely rising on top of a flat November.
Deceptive Decline
Today’s decline in the unemployment rate is deceptive. It shows is that people have stopped looking for jobs. The Civilian Labor Force Participation Rate declined to 64.3% last month and is way off its all time high of 67.3% of early 2000. Had the CLFPR remained unchanged, the unemployment rate would now be about 13.4%
Hello? The Irish election in March
The Irish election in March ― I don’t think this is on the radar screen. The point worth making is that if the opposition party wins, and presses for a debt restructuring, the story isn’t going to end there. The real question from there would be what other countries would follow suit ― this to me is probably the big “financial contagion” risk for 2011.