Jamie Dimon tells it like it is. When asked by CNBC’s Erin Burnett’s how business is going, Dimon replied “terrible.” Here’s how Reuters describes his comments: “November itself has been a terrible trading month … (and) December so far is pretty terrible,” Jamie Dimon told CNBC. “It will be a tough quarter.” Dimon said he was referring to the trading, loans and mortgage segments of the largest U.S. bank.Read more ›
The Economist does a very good post-mortem on Iceland and its spectacular collapse with a number of lessons for other countries, especially those with oversized financial sectors like Ireland, Switzerland and the U.K. Below is a snippet from their article which I highlight because it also demonstrates the real risk of social unrest due to economic collapse. Atop a hill […]Read more ›
The big news today (at least in my mind) is the outsized jobless claims number of 573,000. This number confirms the view that the employment situation is worsening quite rapidly. I think we could see 7.2% unemployment next month given numbers of this magnitude. In other news, a huge row is developing in Europe over whether Keynesian spending is a […]Read more ›
Caroline Baum had a good column today at Bloomberg in which she suggests central banks consider asset prices in monetary policy going forward. In the piece she quoted William White, a former economist from the Bank for International Settlements. He said: “The most calamitous downturns were not preceded by any degree of inflation. There was no inflation in 1873-74, in […]Read more ›
Weekly jobless claims rose in the U.S. to the highest level since 1982, signaling a further deterioration in the U.S. employment market. The seasonally-adjusted number for initial claims was 573,000 while the real number was an eye-popping 757,481. Meanwhile continuing claims surged to 4.4 million, up 338,000 in one week alone. In the reporting of these numbers, I have yet to see anyone realize this is the largest weekly increase in jobless ever. Only one data point from November 1974 matches this weekly surge in continuing unemployment claims and the data series goes back to 1967.
Granted, there are significant data challenges during the holiday season due to seasonal adjustments, but there is no way to spin this data.They are grim. Expect some serious job losses when the December unemployment report comes out in early January.Read more ›
Yves Smith has a good post over at Naked Capitalism that brings attention to the fact that banks are hiding potential losses in Level Three assets. Ultimately, these losses are going to have to be recorded and that means more credit writedowns and a larger bailout for the financial services sector. You have been warned.Read more ›
Yesterday, I mentioned an article I caught in the German newspaper Die Welt which outlined the desire for VW and Daimler Benz to receive bailouts in response to the state aid being offered to American car makers. I warned that a competitve bailout situation was underway. Now, this competition has spread to Sweden, where the Swedish government has introduced a bailout package for its auto makers Saab and Volvo.Read more ›
So we have gotten our auto sector bailout. Let’s see how this shakes out. I am already hearing rumblings that this will not be easy as bondholders are not playing nice. See the link to Felix Salmon’s comments below. My own view is that bond holders will need to take a haircut here, if we are to have any measure of success.
Meanwhile, you will have noticed my post on VW demonstrating that any bailout solutions need to be well crafted and comprehensive in order to avoid the more unpalatable of unintended consequences. We shall see soon whether this auto bailout invites a response from the Germans and Japanese.
I still need to address the Treasury Bubble issue as well despite the fact that government bonds have traded off. My worry here is that, if and when the economy responds to stimulus, we will get a large, uncontrollable selloff, the consequences of which are unknown. In my view, we should always fear unintended consequences.Read more ›
My Austrian School background has been useful as a lens through which to view the credit bubble and crash. Central to this view is the precept that easy money is the problem and not the solution. However, as the crash has unfolded, I find myself parting ways with the Austrians. I have always felt the Austrians are more useful for their economic framework. But they leave me underwhelmed when it comes to solutions for when problems occur. Their “Let them eat cake” approach comes dangerously close to Andrew Mellon’s draconian Depression era prescription and is more likely to end in a deflationary spiral and a worsening of the problem.
And so it is today. If we are to find our way out of this crisis — the worst in three quarters of a century — it will not be the ideas of Ludwig von Mises or Murray Rothbard which will guide us. It is more the work of John Maynard Keynes and his followers that is likely to offer useful prescriptions. As much as I would like to look to the Austrian School in this crisis, I cannot. These are the confessions of a former Austrian Economist.Read more ›
It seems that the bailouts are now turning into a “Beggar Thy Neighbor” policy of aid for specific sectors of the global economy. First, it was finance as the banks were savaged by massive writedowns to their property and derivative holdings — with each nation competing with the next for the largest handouts to this vital sector of the economy.Read more ›
You think things are bad where you were. Well, then, take a look at Ireland. Irish punters are really taking it on the chin. Stocks are down 75% from their peak in February 2007. This makes 2008 the worst year for Irish equities since 1793, according to a report from Bloxham Stockbrokers.Read more ›
On the financial scene, I see the biggest news as being the fact that the yield on 3-month treasuries have now gone negative. This is an absolute first. This means the U.S. government is being paid by investors to borrow. Given the fact that the U.S. government is about to go on a borrowing binge of historic proportions, it sees a bit odd that yields are below zero. It seems to me that the liquidity being produced by central banks is finding its way into the U.S. government bond market, NOT into loans which will restart the global economy. This is another demonstration as to why low interest rates cannot solve what ails us. It also demonstrates for the first time that the zero bound is not a hard constraint. Does this mean the liquidity trap is a fiction?Read more ›