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Via the AP:
“As we know, the global financial crisis originated neither in Russia, nor in Greece or Europe — it came from across the ocean,” Putin said.
“In the United States, we see the same problems — massive foreign debt and budget deficit,” he said.
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The Special Inspector General’s report on TARP has been released from embargo. It concludes that TARP was unsuccessful, and even its (debatable) short-term corrections are overshadowed by the extent to which it has returned the economy to its previous bubble state — “we are still driving on the same winding mountain road, but this time in a faster car.”
From the executive summary:
The substantial costs of TARP — in money, moral hazard effects on the market, and Government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial sys- tem and end up in a similar or even greater crisis in two, or five, or ten years’ time. It is hard to see how any of the fundamental problems in the system have been addressed to date.
- To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the sub- stantial subsidies provided by TARP and other bailout programs.
- To the extent that institutions were previously incentivized to take reckless risks through a “heads, I win; tails, the Government will bail me out” mentality, the market is more convinced than ever that the Government will step in as neces- sary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.
- To the extent that large institutions’ risky behavior resulted from the desire to justify ever-greater bonuses — and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions — the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.
- To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices — as discussed more fully in Section 3 of this report — risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.
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A new Rasmussen survey finds that voters trust Republicans more than Democrats in 6 out of 10 examined issues, with Republicans being favored on the issue most on voters’ minds – the economy – 45% to 39%. It’s the first time in two years that Republicans have been favored on the economy.
This comes despite another Rasmussen survey from last week showing that 62% of voters blame Bush and not Obama for the economy’s ails.
And all of this in light of a recent Gallup survey which shows that a whopping 25% of people think the GOP is “unfavorable.”
What do we learn? Absolutely nothing, especially from polls with sampling errors of 3% either way.
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The market shot up late this afternoon because Paul Krugman stated:
“I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer,” he said in a lecture today at the London School of Economics. “Things seem to be getting worse more slowly. There’s some reason to think that we’re stabilizing.”
In an exceptional display of reverse-causality, Krugman clarified today’s remarks with ones he made last Friday:
Nobel Prize-winning economist Paul Krugman said the world’s economy is showing “not a hint” of a “V-shaped” recovery marked by a swift decline and revival.
The economy is “stabilizing, not recovering,” Krugman, an economics professor at Princeton University in New Jersey, said today at a conference in Dublin. “Things are getting worse more slowly.”
“We have made the transition from sheer panic to chronic anxiety,” Krugman said, adding he’s has a “hard time” seeing what might drive a “full” economic recovery.
Indeed, anyone following Krugman for the last year is certainly aware that he doesn’t see the end of the recession as anything more than a semantic difference. An L-shaped recovery is hardly a “recovery” at all. But don’t tell the day-traders.
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Happily, I’ve only used the term “green shoots” one time in the brief history of TGR, and then only sarcastically in the title of this cartoon (which I stand by, as this post should make evident).
The term has always struck me as ridiculous, and not solely because it was first uttered at a time when it was not only false, but utterly misleading. What’s worse is that the manner in which the media has pounced on the phrase has eliminated any shades of meaning, much as our eyes glaze over as reports of “billions of dollars lost” and “hundreds of thousands of jobs eliminated” come out — we have become desensitized by the magnitude of the concept and our overexposure to it (not to mention that no matter how many times we shut our eyes and whisper, it doesn’t seem to materialize).
Ultimately, the term has become synonymous with the “second derivative” argument – things are getting worse, but they are getting worse at a slower rate – green shoots sprouting! And while I don’t at all equate “not-as-bad news” with “good news”, I was happy to let the second derivative camp savor their banner phrase.
Until this morning.
For some reason, today I finally began to think about what “green shoots” really means: it represents the spring, rebirth and growth. It doesn’t stand for a positive second derivative, but for a positive first derivative – something universally aknowledged not to be the case. I find this revelation infuriating: if we don’t have a positive first derivative, representing growth, then how can there be green shoots, which also represent growth?
For those willing to continue reading, I’ll illustrate what I mean with graphs that may confuse more than they educate. Shall we? Let’s shall.
Follow a plant through it’s life cycle: it grows in spring, flourishes in summer, withers in the fall and essentially hibernates in the winter (I don’t know what the proper horticultural term is). Since I want to tie this back to derivatives and such, let’s get some math involved. A simple graph of the flower’s height above the ground might follow a sinusoidal curve and, courtesy of Wolfram Alpha really coming through, look like this:
Here is its first derivative:
And here is its second derivative:
In all these graphs, 0 is winter, 1 is spring, 2 is summer, 3 is fall, and 4 is winter again. Also, a key point is that because this is a graph of height above the ground, green shoots would be observed somewhere between 0 and 1, as the plant first emerges from the soil.
Now we need to figure out where we are in this hypothetical plant lifecycle. We know we have a negative first derivative, which puts us between 2 and 4 (summer and winter). We also have a positive second derivative – for argument’s sake – which limits us to sometime after 3 (fall). So we are in the space between fall and winter; our economic “plant” is withering away, albeit at a slower pace than it was during the first cold snap.
So, IF the plant metaphor holds (and let’s assume it does, for why else would we use the term “green shoots”?) and IF we are seeing the second derivative turn positive (and I’m not ready to aknowledge that, yet, but the green-shootists are) and IF the first derivative remains negative (no doubts there), we have not yet made it to spring. Only as we reach spring does the first derivative turn positive and green shoots emerge. Just to be absolutely clear: there are no green shoots yet.
(You’re right, I could have spared you and written that much earlier, but I wanted to use the graphs.)
You will notice that in the winter, the plant actually retracts back into the ground, but I suppose “brown shoots” or the titular “dead shoots” doesn’t quite capture the spirit of that positive second derivative. I’m sure there must be other plant metaphors, like “winter blossoms” or “the last leaves to fall”, that are more appropriate.
I suggest ”pushing up daisies”.
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April advance retail sales were announced much lower than expected, coming in at -0.4% vs the anticipated 0% month-over-month change. Auto sales constitute a large part of retail sales (around 20%, in fact), and so it can be informative to look at the retail number excluding autos to see the real trend in consumer behavior. That figure was -0.5% vs an expected 0.2% gain.
You may recall that not long ago, the seasonally-adjusted auto sales rate for April was announced at a dismal 9.3mm vehicles, following a March rate of 9.9mm (and an awful February, 9.1). This looks like a clear case of auto sales dropping in April, which is unsurprising given the Chrysler/GM turmoil. Even Toyota sales were hurt as consumers shied from the entire industry.
The economists who are surveyed before the sales figures are announced clearly took the poor April data into account, since their median sales number inclusive of autos is 0.2% lower than ex-autos. But the actual data released this morning (-0.5% ex-autos; -0.4% inclusive) implies that auto sales contributed a gain of 0.1% in April!
Maybe we’ll get a revision?
Caveats: advance sales are noisy estimates based on incomplete data; advance sales figures are released by the Census Bureau while monthly auto SAARs are estimated by AutoData Corp.
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Just overheard on Charles Schwab radio (a story for another time):
Astute investors know the stock market typically bottoms before the economy.
If only an investor could identify a bottom without the benefit of hindsight, such knowledge would actually be useful.
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It’s hard to believe FT Alphaville is taking this seriously, but they are: markets and sunspot cycles. Apparantly, as this very convincing graph shows, recessions correspond with the regular sunspot cycle:
As this plainly demonstrates, there is a perfect correlation with sunspots and recessions. Except for that little recession in the 1930′s, but that one doesn’t count, right? And this isn’t the first time that sunspots have been tied to the economic cycle – researchers have found an impact on the price of wheat.
What I see here is an overlay of two cyclical occurances, and a somewhat forced conclusion of causality based on their correlation (have we learned nothing?). While the wheat price study is somewhat more convincing, is it such a stretch to think that maybe wheat prices and recessions are linked, and that the sunspots are a spurious correlation that really have nothing do to with either? That argument can be made with equally sound “analytics” (by which I mean looking at pictures).
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