('Click' on the highlighted items to go to the cited articles)...
A recurring theme in these segments has been to focus on factors
contributing to economic revival as well as elements that may
delay or stall the recovery. In the past two editions we've touched
upon the impact of crude oil prices and both times have revisited
the Reuter's article forewarning a 'Double-Dip' Recession
(see 05/26 installment). The specter of that $60+ budget-busting,
recovery-ruining, gas-pump-gouging barrel of crude is still with us
and only Friday did the price slip just below the $70 mark...
Fortune Magazine and President Obama have taken on that topic
of late - the magazine searching for the rationale, if any, for the
uptick, and the President preaching 'tried-but-truisms' to quell
the crowd. In one article Fortune reruns some of the banalities on
the subject; supply is ample and demand is weak so the rally in
crude pricing isn't "supported by the fundamentals...". Many take
this as an indication that money is flowing back into the system.
But maybe some new light is shed through a Morgan Stanley
analysis focusing on the inverse relationship between a weakening
dollar and the rising price of crude. As the dollar falls, oil becomes
cheaper in other currencies, consumption increases and higher
pricing can ensue... and guess what? The US Dollar Index has
dropped 9% since March. The President, faced with the oil bubble
and its recovery-dampening impact, is pulling out the regulatory
hammer and proposing that commodities pricing be insulated
from any impact by the investment community through specifically
designed additional reform. This is to be an extension to the role
of the Commodities and Futures Trading Commission and is a
subject that bears watching over the next few months... Particularly
so as things continue to percolate in Asia and we begin to see the
recovery many claim is being cultivated there, (and the inevitable
impact on Asia's demand for crude).
Every few weeks we try to put a perspective on where things are
and where they may be going. We've mentioned the 'Economic Clock'
before and now Fortune has developed their "Big Picture Index",
adding some poignancy to the 'Clock'... Take a look at the
contributory indices pertaining to Homes (foreclosures), Jobs
(employment), Stocks (market cap), Business & Consumer Loans
(amount of new), Household Income (income tax withholding)
and CEO Confidence (stock buybacks). Keep an eye on this Index
going forward as some of these metrics are particularly telling
and currently do not really support the media-favored view
that improvement is already much in evidence.
That brings us to the most recent positively positioned media
reports... Three articles from EIU, Reuters and CNNMoney
speaking to the expectation that things are getting better in
the business world. The first lays out data from another
EIU Survey on how executives view their businesses in the
coming 12 months. Aside from the expected differences by
business sector there are also dramatic regional differences
with Asia being much more optimistic and East Europe/Latin
America being decidedly pessimistic, (think about that
around-the-corner oil demand in Asia). Reuters says that
the CEO Index has shown some rebound even though most
(CEOs polled) are still planning more layoffs and less capital
expenditure (49% & 51% respectively). It's interesting to
compare this to the EIU report also suggesting that execs
are more bullish about their own businesses, and then again
to that Fortune index that arguably does not support this
position. Revisit the Fortune CEO Confidence Index
pertaining to stock buybacks... the number for June is
showing a slight uptick but still is only 10% of the August
2007 peak and maybe indicates that some corporations
expect cash flow to continue to decline? Then we have the
Fed's Claim ,"that the pace of the decline is slowing...".
This will be the first year of negative GDP growth since
the end of WWII. But, while noting that the economy is
weak, the Fed still says, "there are signs of a recovery"...
Supporting the assertion we are told that we have
household spending stabilizing, financial markets improving,
inventories coming more in line with demand, little near
term threat of inflation... But take another look at the
Fortune CEO Index... is lack of buybacks a sign that the
current stock market rally is premature?
Aside from the Fed's positive signs there is still an
abundance of negative indications... and they all come
this time from CNNMoney. During the week we had
reports on Jobless Claims and Mass Layoff numbers. Claims
for this past week unexpectedly exceeded the previous week...
reportedly the "underlying trend is downward but slow and
uneven"... sounds a lot like the Fed suggestion that the "pace
of the decline is slowing"... on top of this continuing claims are
also up, but, the 4-week moving average is down (a whole
5bps)...is this a trend or are benefits starting to become
exhausted? Or is it simply noise that is a part of the usual
average revisions? In any event, Mass Layoffs are up and
the June rate is expected to hit 9.6% as compared to the May
number of 9.4%. Recall when we talked of 'mixed messages'
in the media? Well they're in the numbers, too... Home Sales
numbers also came out this week and while total inventory
fell 3.5%, reportedly due to a much needed 2.4% increase in
existing home sales - prices fell. Median year-over-year
housing prices dropped 17% and we are still left with nearly
a 10-month inventory.
So.... are we better off this week than we were 2+ weeks ago?
We are better off knowing more and more about how this
economy works, what metrics need to be monitored and what
processes are functioning properly as compared to those which
are not. To a large extent not knowing these things, and readily
accepting the status quo without question, brought us to where
things are today. And in that way our collective experience is
like that of any business that needs to have the same questions
asked of its status by those responsible for managing business
risk. In your business are you comfortable with the processes
in place? Do they need to be at least reviewed if not challenged?
Are you looking at the right metrics and is your data sufficiently
robust to support those metrics and the analyses you need to be
doing?
Think about it...look into it...call someone for help if you need it....
Sunday, June 28, 2009
Friday, June 12, 2009
In The News Of Late...
('Click' on the highlighted items to go to the cited articles)
We're starting with a series of stories out of CNNMoney this time...
...lately they have been taking a decidedly positive view on,..well,...
everything...the task at hand may be one of sorting the mixed
messages being received and deciding what is fleeting versus
tangible and sustaining... After having cut rates and infused
$1+Trillion into the flagging economy, the Fed forecasts no increase
in economic activity in '09 while coincidentally seeing "...modest
signs the pace of economic decline was easing.." ; the source being
eight districts reporting 'slight' home sales improvement.
...continuing with CNN, and in modest support of the foregoing,
Home Depot is a bit more bullish on their own forecast for the
balance of the year... although expecting earnings to be flat, their
CEO tells analysts that "economic indicators are signaling...the
worst of the housing downturn is over...".
...in another corner, the Labor Department said today that weekly
initial jobless claims are down almost 4% from the previous week
and are better than anticipated. But, continuing claims are up, as
expected, leaving the US at 9.4% unemployment and headed
inexorably for double digits... in real terms that's 2.9 million jobs
lost this year.
...CNN continues the upbeat approach citing Thursday's
Commerce Department report...retail sales in May were up
50bps from April...and the revised numbers for April indicate
less of a decline than had previously been reported. In fact,
May numbers met economists' expectations.
...a bit more mixed news portrayed as 'good' in CNNMoney;
REOs are up (reportedly related to many different State
moratoria), but on the bright side fewer foreclosure notices
were filed in May than in April. California and Florida still
top the list for number of filings but Nevada has the record
now for total filings to number of households.
...in moving away from the CNN outlook, we find that
TIME echoes the sentiment we touched upon last time
regarding the amount of back-and-forth, good-then-bad
reporting...does this tend to obscure the more relevant
points behind the news? In this article the writer refers to
the "Great Consumer Retrenchment"...this being the still
incredible levels of consumer debt in the US. The Fed
reported that consumer debt-to-income was at 130% at
EOY 2008 and that the expectation is for the imminently
due newer numbers to be lower, but not by much. People
are paying off debt, incurring less new debt and granting
themselves 'forgiveness' on some of their debt (e.g. refusing
to pay their credit cards). How much deleveraging is enough?
And what is the 'right' level for debt-to-income?
...back to CNNMoney again and still on the subject of consumer
spending... what happens when oil exceeds the $60/barrel
target that analysts declared in May to be a possible ceiling
(and consider that on 6/11 the price was $72+) ?
World-wide demand is not increasing at the moment and
reportedly there is surplus capability to produce... so... is
Wall Street the 'culprit' in that more and more investors are
leaving other investments for the crude oil market? Does the
movement to oil and riskier stocks indicate economic upturn,
as the article cites, or does it take us further away from recovery
on the 'economic clock' ? If, as suggested in the article, $80
is the recession-break-point for the price of oil, will the current
run-up be the harbinger of the 'double-dip' Reuters spoke to
a couple of weeks ago (see May 26 edition) ?
...and how does $60+B in support for the US Automakers figure
into the overall scheme of good versus bad economic news?
With no plan for extricating US Taxpayers from the stakes
taken in the Automakers (early withdrawal "could disrupt
markets..."), and acknowledgment by a senior administration
official that there are no guarantees of repayment - add this
to Auto Company mergers, the specter of impending additional
layoffs and increasing numbers of advertisements for low/no
interest or down-payment auto financing, job loss support,
deferred payment and rebates...makes one think again on that
TIME article about the fragility of the current situation...that
$3 to $5Trillion in consumer debt needs to be shed to achieve
a 100% debt-to-income ratio and that savings needs to double
to 10% as well if that is to happen...and that the economic
debility of the 1930's lingered for a decade... The 'double-dip',
as postulated by Reuters, could be precipitated by very little.
...proponents of the current 'recovery' see positive signs
everywhere while others see many still very fundamental flaws
and broken cogs in the system. The EIU reports that a majority
of financial managers surveyed believe that current Risk Culture
is in need of overhaul. Basic changes in controllership and
governance, the added availability and quality of data and the
depth to which risk principles are ingrained within institutions...
these, and more, all need to be part of the reformation in Risk.
And while not all those surveyed are in the midst of reviewing
and reconstructing their Risk Management programs, an
alarming 60% of them agreed that Risk is not universally
implicit within their organizations.
...so...do we then return to the TIME suggestion that the current
news cycle hinders an appreciation for the larger questions...
that the basics are obscured and that there is insufficient
movement toward re-establishment of 'the basics' where these
are needed? Now is the time to begin this rebuild...the EIU
survey says that 53% of those executives polled are planning
to do just that...the problem may be that it is only 53% who
said this and that maybe all they do is plan? Hopefully those
plans become more than just that...where do you fit in?
We're starting with a series of stories out of CNNMoney this time...
...lately they have been taking a decidedly positive view on,..well,...
everything...the task at hand may be one of sorting the mixed
messages being received and deciding what is fleeting versus
tangible and sustaining... After having cut rates and infused
$1+Trillion into the flagging economy, the Fed forecasts no increase
in economic activity in '09 while coincidentally seeing "...modest
signs the pace of economic decline was easing.." ; the source being
eight districts reporting 'slight' home sales improvement.
...continuing with CNN, and in modest support of the foregoing,
Home Depot is a bit more bullish on their own forecast for the
balance of the year... although expecting earnings to be flat, their
CEO tells analysts that "economic indicators are signaling...the
worst of the housing downturn is over...".
...in another corner, the Labor Department said today that weekly
initial jobless claims are down almost 4% from the previous week
and are better than anticipated. But, continuing claims are up, as
expected, leaving the US at 9.4% unemployment and headed
inexorably for double digits... in real terms that's 2.9 million jobs
lost this year.
...CNN continues the upbeat approach citing Thursday's
Commerce Department report...retail sales in May were up
50bps from April...and the revised numbers for April indicate
less of a decline than had previously been reported. In fact,
May numbers met economists' expectations.
...a bit more mixed news portrayed as 'good' in CNNMoney;
REOs are up (reportedly related to many different State
moratoria), but on the bright side fewer foreclosure notices
were filed in May than in April. California and Florida still
top the list for number of filings but Nevada has the record
now for total filings to number of households.
...in moving away from the CNN outlook, we find that
TIME echoes the sentiment we touched upon last time
regarding the amount of back-and-forth, good-then-bad
reporting...does this tend to obscure the more relevant
points behind the news? In this article the writer refers to
the "Great Consumer Retrenchment"...this being the still
incredible levels of consumer debt in the US. The Fed
reported that consumer debt-to-income was at 130% at
EOY 2008 and that the expectation is for the imminently
due newer numbers to be lower, but not by much. People
are paying off debt, incurring less new debt and granting
themselves 'forgiveness' on some of their debt (e.g. refusing
to pay their credit cards). How much deleveraging is enough?
And what is the 'right' level for debt-to-income?
...back to CNNMoney again and still on the subject of consumer
spending... what happens when oil exceeds the $60/barrel
target that analysts declared in May to be a possible ceiling
(and consider that on 6/11 the price was $72+) ?
World-wide demand is not increasing at the moment and
reportedly there is surplus capability to produce... so... is
Wall Street the 'culprit' in that more and more investors are
leaving other investments for the crude oil market? Does the
movement to oil and riskier stocks indicate economic upturn,
as the article cites, or does it take us further away from recovery
on the 'economic clock' ? If, as suggested in the article, $80
is the recession-break-point for the price of oil, will the current
run-up be the harbinger of the 'double-dip' Reuters spoke to
a couple of weeks ago (see May 26 edition) ?
...and how does $60+B in support for the US Automakers figure
into the overall scheme of good versus bad economic news?
With no plan for extricating US Taxpayers from the stakes
taken in the Automakers (early withdrawal "could disrupt
markets..."), and acknowledgment by a senior administration
official that there are no guarantees of repayment - add this
to Auto Company mergers, the specter of impending additional
layoffs and increasing numbers of advertisements for low/no
interest or down-payment auto financing, job loss support,
deferred payment and rebates...makes one think again on that
TIME article about the fragility of the current situation...that
$3 to $5Trillion in consumer debt needs to be shed to achieve
a 100% debt-to-income ratio and that savings needs to double
to 10% as well if that is to happen...and that the economic
debility of the 1930's lingered for a decade... The 'double-dip',
as postulated by Reuters, could be precipitated by very little.
...proponents of the current 'recovery' see positive signs
everywhere while others see many still very fundamental flaws
and broken cogs in the system. The EIU reports that a majority
of financial managers surveyed believe that current Risk Culture
is in need of overhaul. Basic changes in controllership and
governance, the added availability and quality of data and the
depth to which risk principles are ingrained within institutions...
these, and more, all need to be part of the reformation in Risk.
And while not all those surveyed are in the midst of reviewing
and reconstructing their Risk Management programs, an
alarming 60% of them agreed that Risk is not universally
implicit within their organizations.
...so...do we then return to the TIME suggestion that the current
news cycle hinders an appreciation for the larger questions...
that the basics are obscured and that there is insufficient
movement toward re-establishment of 'the basics' where these
are needed? Now is the time to begin this rebuild...the EIU
survey says that 53% of those executives polled are planning
to do just that...the problem may be that it is only 53% who
said this and that maybe all they do is plan? Hopefully those
plans become more than just that...where do you fit in?
Tuesday, May 26, 2009
In The News This Past Week...
The lead-off story this week again comes out of the Economist Intelligence Unit and pertains to the ongoing status of Globalization... their analysis indicates that the current crisis will have a marked impact on the global business landscape and that the previous levels of growth, market liberalization and infrastructure investment will reach a period of stasis, if not actual retreat... the glimmer of hope is in the Emerging Markets where the starting point for Globalization was markedly lower... openness and continued reform seem likely to continue albeit not at the previous pace.
CNNMoney takes a somewhat more bullish attitude in their view of Emerging Market Growth... they contend that 70% of polled global money managers are now expecting global economic improvement over the course of the coming 12 months and that this is to be driven by Emerging Markets...retrenching, status quo or forward movement? The Morgan Stanley Capital International Emerging Market Index reportedly supports the majority money manager view... aside from the implied stock market impact, what does either stasis or moderate growth mean to the Consumer Markets in Emerging Countries? Are these markets in a position today to continue the process of infrastructure build supporting good and fair lending practices? Who is going to do it and from where will the resource come?
CNNMoney continues with another piece on a related topic...Expenses... banks are looking everywhere to cut expenses and reduce costs... they are trying to prove that they are not recklessly spending but will they go too far with more layoffs, asset sales and refusal to build & maintain infrastructure? The search for short-term remedies may put them in untenable situations vis-a-vis the ability to take advantage of circumstances presented when inevitably the economic rebound begins... where is the expertise going to be when the realization strikes that processes and support mechanisms are not current?
How long and how bad? The cost cutting and refusal to move forward is significantly impacted by the longer-term view... "recessions caused by financial crises have a history of being long, deep and difficult to fully escape"...so reports Reuters in their view on the likelihood of a US recession 'Double-Dip'...following the end of the government stimulus support, any number of 'shocks' could bring about another reversal...even so, growth in the US economy is expected to be a tepid 0.5 to 1.5%, at best, for up to 3 years...how far behind will we fall in our consumer markets in that amount of time and what will it take to recoup?
And then there is the beleaguered Emerging Market viewpoint... the current coalition government in Thailand espouses..."a return to economic growth in the fourth quarter despite GDP shrinking 7.1% ... its biggest decline since the 1997-98 Asian Economic Crisis...". The government has proposed $41B in infrastructure investment as well as tax cuts on top of the 2.5% central bank rate cut already handed out... Thai banks are 'expected' to become less risk averse as these proposed investments are made...
The case is clear regardless of the point of view taken - political rhetoric or bearish negativity - when unemployment eases, when the benefits of various stimulus plans begin to be felt, when funding finds its way to the consumer markets...only those who have data, analytic ability, coherent & updated lending policies & practices and sound & tested operational support will be in a position to take prudent advantage of the rebound in consumer confidence and the pent-up demand for goods and services that is expected to follow....who will and will not be ready?
CNNMoney takes a somewhat more bullish attitude in their view of Emerging Market Growth... they contend that 70% of polled global money managers are now expecting global economic improvement over the course of the coming 12 months and that this is to be driven by Emerging Markets...retrenching, status quo or forward movement? The Morgan Stanley Capital International Emerging Market Index reportedly supports the majority money manager view... aside from the implied stock market impact, what does either stasis or moderate growth mean to the Consumer Markets in Emerging Countries? Are these markets in a position today to continue the process of infrastructure build supporting good and fair lending practices? Who is going to do it and from where will the resource come?
CNNMoney continues with another piece on a related topic...Expenses... banks are looking everywhere to cut expenses and reduce costs... they are trying to prove that they are not recklessly spending but will they go too far with more layoffs, asset sales and refusal to build & maintain infrastructure? The search for short-term remedies may put them in untenable situations vis-a-vis the ability to take advantage of circumstances presented when inevitably the economic rebound begins... where is the expertise going to be when the realization strikes that processes and support mechanisms are not current?
How long and how bad? The cost cutting and refusal to move forward is significantly impacted by the longer-term view... "recessions caused by financial crises have a history of being long, deep and difficult to fully escape"...so reports Reuters in their view on the likelihood of a US recession 'Double-Dip'...following the end of the government stimulus support, any number of 'shocks' could bring about another reversal...even so, growth in the US economy is expected to be a tepid 0.5 to 1.5%, at best, for up to 3 years...how far behind will we fall in our consumer markets in that amount of time and what will it take to recoup?
And then there is the beleaguered Emerging Market viewpoint... the current coalition government in Thailand espouses..."a return to economic growth in the fourth quarter despite GDP shrinking 7.1% ... its biggest decline since the 1997-98 Asian Economic Crisis...". The government has proposed $41B in infrastructure investment as well as tax cuts on top of the 2.5% central bank rate cut already handed out... Thai banks are 'expected' to become less risk averse as these proposed investments are made...
The case is clear regardless of the point of view taken - political rhetoric or bearish negativity - when unemployment eases, when the benefits of various stimulus plans begin to be felt, when funding finds its way to the consumer markets...only those who have data, analytic ability, coherent & updated lending policies & practices and sound & tested operational support will be in a position to take prudent advantage of the rebound in consumer confidence and the pent-up demand for goods and services that is expected to follow....who will and will not be ready?
Thursday, May 14, 2009
In The News This Week
Following up on last week's articles, it seems that some of the exuberance of the past week has given way again to harsh reality... The EIU's most recent press release highlights their survey findings on impending fundamental changes in Capitalism heralding a "new era of lower risk tolerance"...
Continuing with the EIU... regional implications not often heard about, but not surprising given the "deals" in the Weekly Travel section lately: what is happening in the tourist-dependent Caribbean region?
And the big 5 economies in Europe? EIU speaks to a varied set of circumstances in these markets and a decidedly negative view on near term economic performance with a growing list of downside risks and yet to be realized impact from growing issues in eastern Europe.
As for the US, the topic of Credit Card legislation is still front and center with some new developments since last week on the subject of credit line exposure and impending decreases -on the order of $2Trillion....
Continuing with the EIU... regional implications not often heard about, but not surprising given the "deals" in the Weekly Travel section lately: what is happening in the tourist-dependent Caribbean region?
And the big 5 economies in Europe? EIU speaks to a varied set of circumstances in these markets and a decidedly negative view on near term economic performance with a growing list of downside risks and yet to be realized impact from growing issues in eastern Europe.
As for the US, the topic of Credit Card legislation is still front and center with some new developments since last week on the subject of credit line exposure and impending decreases -on the order of $2Trillion....
Wednesday, May 6, 2009
John's First Post
A couple of interesting articles in the news this week...
The first is by way of the Economist Intelligence Unit and speaks
to the Economist's Global Innovation Index for the BRIC Emerging
Markets. China has moved up while India, Russia and Brazil have
remained stable. See this at : China Rating.
The next are related to where Congress is on Credit Card legislation.
See the status in the House at Bill of Rights and what the Senate is
doing at Cards Changes.
How major banks rate today vis-a-vis Stress Testing is interesting
in that they all get preliminary good marks, but it looks like they all
need reserves for anticipated additional Loan Losses.
But, according to Ben Bernanke, there is 'light at the end of the tunnel'
in : 09 Improves.
Stay tuned for updates later this week and also peruse for yourselves
on the links to the right....
The first is by way of the Economist Intelligence Unit and speaks
to the Economist's Global Innovation Index for the BRIC Emerging
Markets. China has moved up while India, Russia and Brazil have
remained stable. See this at : China Rating.
The next are related to where Congress is on Credit Card legislation.
See the status in the House at Bill of Rights and what the Senate is
doing at Cards Changes.
How major banks rate today vis-a-vis Stress Testing is interesting
in that they all get preliminary good marks, but it looks like they all
need reserves for anticipated additional Loan Losses.
But, according to Ben Bernanke, there is 'light at the end of the tunnel'
in : 09 Improves.
Stay tuned for updates later this week and also peruse for yourselves
on the links to the right....
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