Global insights audio-slides-08-01-11
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  • Extend & Pretend > Kick the Can Down the Road > Harry Truman had a placard on his desk that said the “buck stops hear”Charades and Illusions > “Perceptions are Reality’Mobius: US Dollar, Treasurys No Longer Safe Havens
  • This is a reduction from a CBO Budget calling for 25% Government Spending as % GDPThis is still a 2.4T increase in the debt ceiling and does not achieve the “Grand Bargain” required.DEAL DOES NOT ADDRESS THE CREDIT AGENCIES EXPRESSED AND DOCUMENTED WARNINGS Standard & Poor’s highlights that for a plan to be credible it has to be:1-Bipartisan. 2- Need to know three things: 1- Are they actionable? 2- Can they be implemented?3- And are they credible?
  • Revisions: Huge Revisions all the way back to 2007The US economy shrank 5.1% from the fourth quarter of 2007 to the second quarter of 2009, compared with the previously reported 4.1%drop.For the 13 quarters from the fourth quarter of 2007 to the first quarter of 2011, the average revision (without regard to sign) was 0.9 percentage point. Nearly a full percent.Q1 taken down to 0.4% Annual Rate – Verge of contraction with 22% Government Spending, fictional deflator rate and nearly 3 years of Monetary and Fiscal stimulus, guarantees, Zero Interest policy = totaling approximately $14T Q2 1.3% Annual rate versus reduced forecast of 1.8%DETAILS:For 2007-2010, real GDP decreased at an average annual rate of 0.3 percent; in the previously published estimates, real GDP had increased at an average annual rate of less than 0.1 percent.From the fourth quarter of 2007 to the first quarter of 2011, real GDP decreased at an average annual rate of 0.2 percent; in the previously published estimates, real GDP had increased at an average annual rate of 0.2 percent.The percent change in real GDP was revised down 0.3 percentage point for 2008, was revised down 0.9 percentage point for 2009, and was revised up 0.1 percentage point for 2010.The revisions to the annual estimates for 2008 and 2010 reflect partly offsetting revisions to the quarters within the year. For example, for 2010, the annual rate of change in GDP was revised up 0.2 percentage point for the first quarter and was revised up 2.1 percentage points for the second quarter, while the growth rates for the third and fourth quarters were revised down 0.1 and 0.8 percentage point, respectively. The downward revision to the change in real GDP for 2009 reflects downward revisions to the first and fourth quarters.For the 13 quarters from the fourth quarter of 2007 to the first quarter of 2011, the average revision (without regard to sign) was 0.9 percentage point. The revisions did not change the direction of the change in real GDP (increase or decrease) for any of the quarters.For 2007-2010, the average annual rate of growth of real disposable personal income was revised down 0.6 percentage point from 1.2 percent to 0.6 percent.From the fourth quarter of 2007 to the first quarter of 2011, the average annual rate of increase in the price index for gross domestic purchases was revised up from 1.4 percent to 1.6 percent. The average annual rate of increase in the price index for personal consumption expenditures (PCE) was revised up from 1.6 percent to 1.7 percent, and the increase in the “core” PCE price index (which excludes food and energy) was revised up from 1.5 percent to 1.6 percent.National income was revised up 0.4 percent for 2008, was revised down 0.6 percent for 2009, and was revised up 0.1 percent for 2010.Corporate profits was revised down 1.1 percent for 2008, was revised up 8.3 percent for 2009, and was revised up 10.8 percent for 2010.The above summary is from the BEA Gross Domestic Product: Second Quarter 2011 (Advance Estimate
  • Clearly GDP has rolled over as we have been very clear in spelling out for months now – despite what the media kept saying in April and May.But I want to talk about that blue line on this chart.the economy has not been an organic one. With more than $5 Trillion injected into the system through various Federal interventions and stimulus, it is disappointing that we only increased GDP by a little more than $900 Billion in the last two years. That is expensive growth any way you price it and is unsustainable without further injections. We have discussed many times recently that the unemployment rate remains high, housing prices are slipping into a secondary decline, consumer and business spending is slowing, while gas and food prices remain high, eating up more than 20% of consumers wages and salaries.
  • Last Wednesday no one paid any attention that New orders for durable goods fell 2.1% last month following a 1.9% May rise. A 0.4% increase had been the Consensus expectation. Transportation sector orders led the fall and slumped 8.5% (+9.5% y/y). Bookings for aircraft & parts fell 26.0% (+11.4% y/y) and reversed the prior month's jump. Nondefense aircraft orders fell 28.9% (+41.1% y/y),Defense fell 20.5% (-17.6% y/y). Lower orders for motor vehicles & parts added to the decline with a 1.4% drop (+6.8% y/y).
  • Lets strip out Defense and see what the Consumer is doingThis is per capita and adjusted for inflation using the officially bogus CPI to be conservative here.The Consumer is not buying! The US is a 70% Consumption Economy?It is government spending.
  • This is telling – Ex defense, nominal and seasonally adjusted to get a view relative to where we were when this Secular Bear Market began.The Great Reflation gave us a head in nominal terms
  • This shows more clearly my view that Consumer Spending is slowing as measured by the Personal Consumption Expenditure statistics.Consumers are acting and behaving like it is a recession because in many ways that is the way it "feels" to them. With high unemployment comes a large available labor pool of workers for every job that is available; therefore the average American is worried about keeping their job if they have one and struggling to find one if they don't. For those that are unemployed the search becomes even more complicated as there are roughly seven applicants on average for every job opening. This high level of competition for every job also suppresses wages. The recent spate of economic weakness has also spurred another round of layoff announcements from companies like Merck, Cisco Systems, Research In Motion, and others which will most likely be reflected in higher unemployment claims and reported unemployment levels in the coming months. This job uncertainty drives consumers into defensive behaviors of paying off debt and increasing savings versus non-discretionary spending. This leads to the "virtual spiral" between the consumer and businesses which keeps the economy from strenghtening.
  • My point this morning is - One small shock and we have a second recession and a crisis. – The Debt Ceiling Deal has now elevated the risk of this occurring.

Global insights audio-slides-08-01-11 Global insights audio-slides-08-01-11 Presentation Transcript

  • This chart is from the discussion recordedAugust 1st, 2011
    DEFICIT DEAL
    Listen to the original recording for this slide at either www.TraderView.com/GlobalInsights or www.GordonTLong.com/GlobalInsights
  • This chart is from the discussion recordedAugust 1st, 2011
    DEFICIT DEAL
    DEBT DEAL
    Final Elements: $2.1T
    • Provides initially for $917 billion in spending cuts over 10 years.
    • A special committee of lawmakers would be charged with finding another $1.5 trillion in deficit reduction, which could come through a tax overhaul and changes to safety-net programs.
    • If the committee doesn't find at least $1.2 trillion in savings, or Congress doesn't adopt its proposals, a pre-set array of spending cuts would kick in, including cuts in military spending and Medicare payments to health-care providers.
    Mr. Obama called the top Democratic and Republican leaders from both chambers Sunday night to make sure everyone was on board just 10 minutes before he appeared in the White House briefing room to announce the deal.
    Listen to the original recording for this slide at either www.TraderView.com/GlobalInsights or www.GordonTLong.com/GlobalInsights
  • This chart is from the discussion recordedAugust 1st, 2011
    STARTLING REVISIONS!
    Listen to the original recording for this slide at either www.TraderView.com/GlobalInsights or www.GordonTLong.com/GlobalInsights
  • This chart is from the discussion recordedAugust 1st, 2011
    GDP WEAKENING RAPIDLY
    Listen to the original recording for this slide at either www.TraderView.com/GlobalInsights or www.GordonTLong.com/GlobalInsights
  • This chart is from the discussion recordedAugust 1st, 2011
    DURABLE GOODS – As Disappointing as GDP
    Listen to the original recording for this slide at either www.TraderView.com/GlobalInsights or www.GordonTLong.com/GlobalInsights
  • This chart is from the discussion recordedAugust 1st, 2011
    REALITY
    Listen to the original recording for this slide at either www.TraderView.com/GlobalInsights or www.GordonTLong.com/GlobalInsights
  • This chart is from the discussion recordedAugust 1st, 2011
    SAME STORY, Over and Over….
    Listen to the original recording for this slide at either www.TraderView.com/GlobalInsights or www.GordonTLong.com/GlobalInsights
  • This chart is from the discussion recordedAugust 1st, 2011
    THE BUDGET DOES NOT REFLECT THIS
    Listen to the original recording for this slide at either www.TraderView.com/GlobalInsights or www.GordonTLong.com/GlobalInsights
  • This chart is from the discussion recordedAugust 1st, 2011
    ONE SHOCK AWAY FROM A DOUBLE DIP RECESSION
    Listen to the original recording for this slide at either www.TraderView.com/GlobalInsights or www.GordonTLong.com/GlobalInsights
  • This chart is from the discussion recordedAugust 1st, 2011
    POT POURRI
    Listen to the original recording for this slide at either www.TraderView.com/GlobalInsights or www.GordonTLong.com/GlobalInsights