Saturday, July 31, 2004

Last week the General highlighted the outrageous tandem of "pro-choice" opinion pieces run by the New York Times: Amy Richards' casual attitude toward "selective reduction" (with Amy Barrett serving as water-boy) and Barbara Ehrenreich's pride in eliminating her "intrauterine" children. While I had several points, one important one is that these writers are not "pro-choice" at all; they are "pro-abortion".

As they say, 'the proof is in the pudding'. It turns out that Amy Richards along with her writing partner Jennifer Baumgardner is the brains (if I can make such a stretch) behind a new p.r. campaign under the title "I had an abortion". One of her vehicles is a line of t-shirts being hocked through Planned Parenthood (which Richards is proud to model herself):

Another is trying to popularize January 22 -- the anniversary of Roe v. Wade -- as "I had an abortion/I'm not sorry Day". This is nothing close to any definition of "pro-choice". It is "pro-abortion" -- the spreading of "positive abortion experiences" and the pronouncement that abortion is a Good Thing.

It seems that through Richards and Ehrenreich, the New York Times has become little more than an appendage of I'm Not Sorry and the "I had an abortion" ad campaign. At least we all know the Weekly Standard is full of amateurs, cranks and hacks advancing the vast right-wing conspiracy. It looks like the New York Times is in the same category -- useful idiots for the misanthropic pro-abortion movement.

Friday, July 30, 2004

From the reckless to the foolhardy is but a step.
A survey by the Consumer Federation of American found that low-income and minority home buyers are more likely to choose adjustable-rate mortgages, even though they're less likely to understand the potential risks. . . .

the CFA survey suggests that savvy, well-heeled home buyers aren't driving the demand for ARMs. When asked what kind of mortgage they would prefer if they were going to buy a home in the next month, 33% of those with incomes under $25,000 said they would choose an adjustable-rate mortgage. Only 20% of those with incomes over $50,000 preferred adjustable rates.

A more likely reason for the growth of adjustable-rate mortgages, which now account for nearly a third of mortgages, is the rising cost of buying a home. . . .

Many low-income and first-time home buyers are opting for adjustable-rate mortgages because they can't afford a fixed-rate mortgage, says Keith Gumbinger, vice president of HSH Associates. "They're being forced into ARMs by necessity, not choice," he says.

Some of those home buyers also are layering other options on their mortgages to lower their out-of-pocket costs even more, Gumbinger says.

Those features include low down payments and the option of making interest-only payments during the first five years. All of these layers leave little margin for error.
Muckity-muck economists say that ARMs make sense if you plan to leave your house before the rate adjusts. The thing is, however, that if you're buying during a housing bubble, you may very well be setting yourself up for a negative equity situation just when you had planned on selling. If you get in with a low downpayment (and the loan-to-price ratio is rising in bubblicious California) and are paying only interest for the first few years, you're really getting ready to be screwed. You won't own any equity at all worth mentioning, but that nice fat $300,000 loan will still be there.

From John Kerry's speech last night:
I will build a stronger military. We will add 40,000 active duty troops, not in Iraq, but to strengthen American forces that are now overstretched, overextended and under pressure.

We will double our Special Forces to conduct terrorist operations, anti-terrorist operations, and we will provide our troops with the newest weapons and technology to save their lives and win the battle. And we will end the backdoor draft of the National Guard and reservists.

To all who serve in our armed forces today, I say: Help is on the way.
One question: how?

This is yet further cultivation of the irresponsible fantasy that, under a Kerry presidency, Russian, NATO, and Arab troops are going to start pouring into Iraq to secure and stabilize the country. No more US troops will be sent, and by ending the "backdoor draft" of the Reserves and Guard, Kerry is actually promising less troops in 2005. Yet the Pentagon says ~140,000 US troops will remain in Iraq through 2005 at least. How does Lt. Kerry propose to work this magic? A crash course over Christmas vacation at Hogwarts?

Gee, here's a news flash: "IMF . . . Policies Crippled Argentina".

OK, the real news is that the IMF admits as much as everybody else already knew.
By overlooking Argentina's growing indebtedness in the 1990s and continuing to lend the country money when its debt burden had become unsustainable, the fund significantly contributed to one of the most devastating financial crises in history, the report concluded. . . .

Although it remains to be seen whether IMF policies will change as a result, fund officials have long said that the Argentine debacle taught them harsh lessons.
"Harsh lessons"? What, were IMF economists living in cardboard boxes and eating out of dumpsters in 2002? Or did they lose their entire life savings? I wasn't aware the global econom meted out such harsh life lessons to IMF staff.

Certainly the IMF is not the only actor to blame. The Argentine middle class is also culpable, living high on the currency board hog they loved so much, particularly after the Brazilian devaluation of early 1999. But global financial capital made it all possible, and the IMF led the bandwagon every step of the way.

Don't lose sight of skyrocketing oil prices, which only continue to shoot upwards.
Crude oil futures on Friday hit record highs again on growing concerns about the prospect of global oil production not being able to keep up with strong demand, which is rising at its fastest pace in more than two decades.

A report that Opec shipments fell by 0.5m barrels a day in the four weeks to August 7 triggered the latest price surge as a fall in the oil cartel's shipments at a time when the world is soaking up all available output without increasing inventories could cause a further tightening in the supply and demand balance.

September Nymex WTI peaked at $43.23 a barrel in electronic trade, its highest level since crude futures started trading on the New York Mercantile Exchange in 1983 and exceeded the previous peak of $43.05 touched on Wednesday, before easing to $43.13, a rise of 38 cents on Thursday's close.

IPE Brent for September delivery reached a new 14-year high of $39.78 a barrel in early morning trade in London, up 54 cents from the previous close, and is on the cusp of breaking the $40 a barrel level for the first time since October 1990, in the lead-up to the Gulf war.
The most interesting bit of news in this story is how the global oil economy is running faster and faster just to stay in place. Production goes up, but all that extra production is immediately consumed. CNN/Money tells us today
OPEC is pumping at more than 95 percent of capacity, the highest for a quarter of a century, and analysts said it had little room to boost output during emergencies.
In fact, according to Reuters, we're functionally already at peak production since
while Saudi Arabia, the only OPEC producer capable of boosting supply, is finally bringing down crude prices, these are only for the low-quality grades that have a small impact on benchmark futures prices in London and New York, traders said.
Most ominously, a temporary shut-down of YUKOS production could send NYMEX prices up to $45-$46/barrel. It would be hard for Bush to resist tapping into the Strategic Petroleum Reserve, and in fact pleasant for him to do so. However, Bush is surely hoping he can draw on the Reserve a bit closer to the election. Or maybe plunging oil prices combined with the Republican National Convention in late August is on tap?

Down, down, down she goes. When even General Glut is not pessimistic enough, you know things are spiralling downward.
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.0 percent in the second quarter of 2004, according to advance estimates released by the Bureau of Economic Analysis.
Recall the prognostications of so-called "experts", aka professional economists. The Bond Market Association was predicting second quarter growth in the area of 4.9%. The Blue Chip Survey came in at a ridiculous 5.2%. Alan Greenspan looks little more than a fool now since, with the first two quarters of the year at 4.5% and 3.0%, 2004:III growth needs to come in (assuming equal growth over the rest of the year for the sake of simplicity) at a rip-roaring 4.7%-5.7% pace and an only slightly cooler 4.6%-5.6% for 2004:IV. And yet nobody is predicting fourth quarter growth even above 4%. A problem, no?

The only thing keeping GDP growth up as far as 3.0% was capital investment. Goods consumption actually fell in the quarter (durable goods -2.5%, nondurable goods -0.1%) with this the third consecutive quarter of falling spending on cars. Spending on services ticked up a more healthy 2.3%, but most of that (59%) is accounted for by another big rise in medical expenditures -- good for GDP, bad for the real economy (unless of course you think the most wasteful health care system in the world is something to brag about).

At the same time this was the fourth consecutive quarter in which capital investment has risen by double digits. The combination of very low growth in consumer spending plus very high capital investment is a perfect recipe for overproduction and deflation. One can argue that capital is simply recovering from its investment strike of 2001, but that line is wearing rather thin by now.

There is a bit of good news in the report. State and local government spending increased for the first time in three quarters.

So, I hope you've learned your lesson. Don't listen to Alan Greenspan. Listen to General Glut.

Thursday, July 29, 2004

There's a funny headline from the wire services today. AP's puts it this way: "American Wages, Benefits Rise Moderately".
Wages and benefits for U.S. workers rose a moderate 0.9 percent in the April-June quarter this year, down slightly from the previous quarter's increase, as price pressures for benefits like health insurance eased significantly.

The Labor Department reported Thursday that the 0.9 percent rise in wages and benefits in the second quarter followed a 1.1 percent increase in the January-March quarter. It was the smallest quarterly increase since a 0.8 percent rise in the final quarter of last year.
This is the quarterly data on the Employment Cost Index. The propaganda benefit of the ECI over the real wages data is that you have to do some work to turn the ECI into a real inflation-adjusted figure, whereas the BLS does it for you re wages. Factoring in inflation tells a rather different story.

Whereas nominal wages and benefits rose 0.9% for the quarter, real compensation (deflated by CPI) actually fell 0.5%, the first time since 2003:II. More important and telling are the wage and salary data for the quarter. Nominally they are up 0.6% for the quarter. With inflation factored in, real wages and salaries are down 0.8%. This is the second quarter in a row that real wage and salary component of the ECI fell, following -0.3% in 2004:I.

On the annual basis the government loves so much when reporting GDP figures, real wages and salaries are down 2.1% for the first half of 2004. Now that's a headline worth reading.

The unfolding decline in the Australian housing market was in part triggered by the elimination of first-time home buyers from the amazingly overpriced market. If this is a reliable indicator of a housing bubble pop, the UK should start worrying.

As recently as 1999, nearly half (47%) of British mortgages went to first-time buyers. 2000 and 2001 saw only a slight decline into the low 40s. In 2003, a mere 29% of mortgages went to first-time buyers, down to 28% in 2004:II and 27% in June of this year.

The Bank of England, speaking excellent Greenspanian, voiced fears last month that British homeowners could soon find themselves in a negative equity situation.
"Prospects for house prices are highly uncertain and, after the strength of house price inflation in recent years, the chances of a fall have risen. If that were to happen, housing equity would be reduced and capital gearing raised, increasing household mortgage arrears and thus raising the risk of write-offs."
Now today we find out that Brits are in hock to the tune of �1 trillion, and
about 80% of UK personal debt is in the form of loans secured against homes, such as mortgages and re-mortgages.
Clearly a fall in housing prices in the UK would cut deeply into consumption since a housing-based wealth effect is driving overall UK growth much as it is in the US. British housing stock is worth about �3 trillion today. If homeowners' average equity value is anywhere close to 33%, things look troubling.

More news on the fiasco that is Yukos.
The top manager of Yukos Oil Co., Russia's largest oil producer, said Wednesday that the company was continuing production, despite news reports that drove up world oil prices by suggesting that the government had ordered it to turn off its pumps.

Steven M. Theede, Yukos's chief executive, called the situation a misunderstanding. Speaking with reporters traveling with him to tour some of the firm's Siberian facilities, Theede said that the company's production subsidiaries had received a government notice last week forbidding them to sell property and that Yukos's attorneys were trying to determine whether that included crude oil.

"We're just trying to get clarification," he said aboard a chartered jet returning to Moscow. "It's nothing new. We're continuing to produce."
On its face, this news is reassuring since the global economy doesn't take kindly to 2% of global crude production disappearing overnight. However, further on, gentle reader, one sees
The state has frozen Yukos's assets and bank accounts as part of its effort to collect on back-tax claims, which were generated by reopening past audits and reinterpreting tax shelter law to rule out practices that another state agency still considers legal. Unless the state grants the company access to its frozen bank accounts, Yukos will have to shut down production soon. The only question is when.

Theede said the first impact would be felt at the end of next week, when Yukos will no longer be able to pay for rail shipments of oil to China. With no rail service available, the company will be able to continue pumping here for a maximum of three days, until its storage facilities are full. That would effectively shut down about half of the production by the company's Tomskneft subsidiary here in the western Siberian region of Tomsk and about 25 percent of the company's overall production of 1.7 million barrels a day.

By the end of the second week in August, the company would no longer have money to pay for pipeline shipments, either, Theede said. At that point, the rest of production would begin shutting down.
Over at the BBC, however, folks claim to already see the end of the tunnel.
Beleaguered Russian giant Yukos can continue to produce and sell oil despite an earlier demand to stop output, according to Russian officials.

The Justice Ministry said writs barring property sales were not meant to stop Yukos pumping out oil, ending the confusion which pushed up oil prices.

Yukos is facing bankruptcy as courts try to enforce a $3.4bn tax debt.

The company, which pumps a fifth of Russia's crude output, said that operations were continuing as normal.

"The bailiffs' activities are aimed neither at blocking the bank accounts nor the economic activities of Yukos' subsidiaries," the Russian justice ministry spokesman said.
Down at the very bottom of the report, however, the BBC confirms the Washington Post's more dire analysis.
Yukos is still pumping, but oil supplies could still be affected within the next three weeks as its bank accounts are frozen, leaving the firm unable to pay pipeline and rail operators to transport its oil.
Looks like early August ought to be a hair-raising ride.

Wednesday, July 28, 2004

It looks like not only the housing bubble is popping in Australia, but the commercial property bubble is as well.

A sign of coming attractions?

NATO troops have been completely unable to establish order in Afghanistan. What makes anybody think the "coalition of the willing" is willing to do it in Iraq?
The aid agency has been in Afghanistan since 1980 - through the Soviet occupation, the mujahideen resistance, the Taliban's rule and the US-led war to end it.

Today, however, MSF [M�decin Sans Fronti�res] announced the "heartbreaking" decision to pull out of Afghanistan, only the second time the agency has been forced to abandon a country (the first was North Korea). The agency's 80 international staff will leave by the end of August. Its 1,400 local staff will lose their jobs.

The decision came nearly two months after her co-workers' vehicle was returned riddled with bullets and shrapnel from a grenade.
When Bush said, as quoted in Woodward's Bush at War, that his plan was "to create chaos, to create a vacuum" in Afghanistan, the sonofabitch really meant it.

UPDATE: while MSF leaves Afghanistan, their services may be needed in Europe now that the "opium harvest in Afghanistan this year will be one of the biggest on record".
David Chater, a spokesman for the social care charity Turning Point, said an increase in poppy production could mean lower heroin prices and make life tougher for people trying to treat addicts. . . .

[Labour MP Harry] Cohen said: "The rise in cultivation and production of opium poppies in Afghanistan has horrendous portents for us in the UK bearing in mind the PM's statement that 90 per cent of heroin sold on British streets comes from Afghanistan.

"The claim that cultivation tends to increase before declining gives no comfort and ... is not necessarily the case. It seems to me a hope more akin to peeing in the wind."

More doubts arise over the self-sustaining nature of the Japanese recovery.
Japanese retail sales fell in June, government data showed on Wednesday, raising doubts about the strength of personal consumption, which accounts for the lion's share of the economy and is crucial for a sustainable recovery.

Retail sales in June were down 2.9 percent from the same month a year earlier, falling for the fourth month in a row, the Ministry of Economy, Trade and Industry said. That was slightly weaker than economists' consensus forecast of a 2.5 percent drop.
Apparently the Japanese recovery is about as deep as the American recovery in that real wages in Japan are not rising much at all. It's still about exports for Japan, just as it is still about a housing wealth effect in the US. The cheap money approach was supposed to simply be a bridging strategy from recession to self-sustaining growth. Now it looks like the entire world is being asked to live on the bridge. One hopes Halliburton and Bechtel didn't have anything to do with building it . . .

Man, when Morgan Stanley said they see a lot of "upside risks" on oil prices, they weren't kidding!
Crude prices shot to a 21-year high Wednesday as markets reacted to a threat by Russian authorities to shut down most of the production from that country's largest oil company.

September contracts of U.S. light crude spiked 3 percent to $43.05 a barrel on the New York Mercantile Exchange � the highest level since the exchange first began offering the light sweet crude contract in 1983. Prices eased slightly later in the day to $42.90, up $1.06 from Tuesday's close.
According to the FT today,
Yukos produces more than 1m barrels of oil a day, or more than 10 per cent of Russia's output.

Any fall in Russian oil production could push oil prices to record levels as global production is near capacity and is struggling to keep up with demand, which is rising at its fastest level in 24 years. . . .

The gains came just ahead of the latest weekly US commercial crude inventories, which are expected to show a dip in both crude and gasoline stockpiles.
Of course, pay no attention to any of this. The Democrats are in Boston, after all!

Tuesday, July 27, 2004

I finally installed Haloscan today to accomodate comments on postings to the Globblog. Hopefully you will all find this system more user-friendly than the system I had installed from Blogger. Let me know how you like it.

NYMEX crude prices closed today at $41.84/barrel, up 40� over Monday's price and just a sliver short of the June 1 spike price of $42.33/barrel. If you remove that one-day spike, recent NYMEX crude prices topped off at $41.85/barrel (May 17). Thus we're back into record-breaking territory. Thankfully none of this matters because the Democratic National Convention is on TV (whew!).

Morgan Stanley's oil analysts think that baseline Brent crude prices will be $39/barrel for 2004:III. Since Brent prices are about 92% of NYMEX prices, this baseline puts NYMEX crude at around $42.40/barrel . Remember, that's just the baseline -- and Morgan Stanley sees a lot of "upside risks".
Only Saudi Arabia still has some spare capacity, probably around 1.5 mb/d. Since the Asian slowdown that we have been anticipating for some time has not yet materialized, any supply disruption, even limited, could have strong non-linear effects on crude quotes as we get closer to the Northern hemisphere winter, unless the US government decided to open the tap of its huge strategic reserves.
Dubya may just swim to victory in November on a wave of Strategic Petroleum Reserve oil.

To a significant degree this November's US presidential election is capital (Bush) versus the new middle class (Kerry). Notice that the working class is at best a sideline viewer to the proceedings. Liberals will object and cite the long-standing alliance between the Democratic Party and organized labor, particularly in the form of the AFL-CIO. Andy Stern of the Service Employees International Union (SIEU) isn't so sure about that claim.
Andrew L. Stern, the head of the 1.6 million-member Service Employees International Union (SEIU), said in an interview with The Washington Post that both the party and its longtime ally, the labor movement, are "in deep crisis," devoid of new ideas and working with archaic structures.

Stern argued that Kerry's election might stifle needed reform within the party and the labor movement. He said he still believes that Kerry overall would make a better president than President Bush, and his union has poured huge resources into that effort. But he contends that Kerry's election would have the effect of slowing the "evolution" of the dialogue within the party.

Asked whether if Kerry became president it would help or hurt those internal party deliberations, Stern said, "I think it hurts."

. . . Stern complained that motivating blue-collar families who have not voted in the past is being impeded because Kerry and the Democrats have declined to address what he calls "the Wal-Mart economy," a system in which he says employers deliberately keep wages so low and hours so short that workers are forced to turn to state Medicaid programs for their families' health care.

He also criticized what he called the vagueness of the Democratic platform on trade issues.
This is good stuff. Wal-Mart plays an essential structural role in the neoliberal economy, making low wages for the working class palatable through ultra-cheap imports from East Asia and elsewhere. The upshot is, of course, dramatically rising inequality and a diminishing ability to afford key domestic services, particularly education and health care, something Democrats claim to care about but do little to addresss. For the new middle class, attacking Wal-Mart is a lifestyle issue. It hates the big box and the standarization of life it fosters -- justifably so. But when the new middle class attacks Wal-Mart, it usually fails to appreciate how essential Wal-Mart is now to working class families trying to live middle-class lives.

If not Wal-Mart, then what? Voicing those alternatives and crafting a political vision for a different kind of American economy is the work that needs to be embraced (it's already being done) by the top of the Democratic Party. Clearly Stern doesn't think a Kerry-Edwards White House will do that, and I'm inclined to defer to the man in the trenches on this one.

John Kerry's foreign policy prescriptions -- call them Bush Lite or Bush Malt Liquor depending on your perspective -- have long been a point of frustration for the General. Back on June 21 I opined
Kerry's biggest problem is his fundamental agreement with Bush that the #1 security threat to the United States is from terrorists with WMDs.

As the LA Times article continues,
when Kerry describes the contemporary world, and the challenges that the U.S. faces, he sounds just like the president, the vice president and Defense Secretary Donald H. Rumsfeld. Terrorism, he says, "present[s] the central national security challenge of our generation." Preventing terrorists from "gaining weapons of mass murder" is his No. 1 security goal, and Kerry says he would strike first if any attack "appears imminent."
How about some alternatives for #1?
  • climate change;
  • oil dependency;
  • destabilized nuclear powers, especially Pakistan and North Korea;
  • non-WMD foreign terrorism (i.e. the only kind that ever really happens);
Scotland's Sunday Herald puts a little more oomph behind my #1.
Forget global terrorism. One of the scariest stories today is how the Chinese are going to meet their energy demands over the next 20 years. While Scotland fumbles with issues of wind farms blighting the landscape, we should wake up to the potential energy horror story that will impact on everyone.

No matter how many wind turbines Scotland uses, it is going to have an infinitesimal impact on the global environment compared with the coal-fired power stations being built all over China. . . .

Thomson says China�s 10th five-year plan has already had to re-adjust its figures for electricity consumption. �In 1999, the country produced 300,000 megawatts, by 2002 that was 338,000MW. The five-year plan was for 380,000MW, but it has been upgraded to 430,000MW. The state planning has set the target of 900,000MW by 2020. That�s a tripling of energy supply over 15 years.�

That means adding enough new power stations to supply the entire energy needs of Sweden each year for the next 15 years. Whole power and coking plants are being dismantled in countries such as Germany to be rebuilt in China.

By 2020, China will be burning its way through over 100m tonnes of coal each year, fuelling global warming. Last year its total coal production reached 114m tonnes, having doubled since 1981. . . .

Speaking to the Harvard Asia Quarterly roundtable, Dr Economy, a China expert in the US Council on Foreign Relations, said: �China�s reliance on low quality, high sulphur coal is responsible for roughly half of all sulphur dioxide emissions, which causes acid rain throughout East Asia � a situation that has contributed to tensions with Japan and South Korea. Globally, China is one of the world�s largest contributors to ozone depletion, biodiversity loss and climate change.
Frighteningly enough, "clean coal" technology may actually be an important part of a global strategy to limit climate change. It seems impossible to stop China from exploiting its cheap domestic coal resources, so technology transfer must be the order of the day. If a Kerry administration gets serious about the Kyoto Protocol, that could help matters as well. But let's not plan on eating that pie in the sky; in 1997 the US Senate voted 95-0 to reject any international climate change treaty which would limit US capital accumulation.

Monday, July 26, 2004

Oh, no. Alan has been into the lotus flowers again.
The Federal Reserve expects above-average growth, declining unemployment and low inflation through the end of the year and into 2005 - an outlook some economists consider too rosy.

"It's doable on the growth side ... they are too optimistic on the inflation front," says Brian Wesbury of Griffin Kubik Stephens and Thompson, a Chicago investment-banking firm. "They sort of have us obtaining nirvana again like the 1990s boom."

In its semiannual economic report to Congress last week, the Fed predicted growth in 2004 to average 4.5% to 4.75%. The core inflation rate, which doesn't include food and energy prices, will top out at 1.75% to 2%, and unemployment - now 5.6% - will average 5.25% to 5.5% in the fourth quarter, falling to as low as 5% at the end of 2005.
Even though Alan & Co. need to be tied under the benches of the USS Federal Reserve, the General has found economists who have rowed away from the country of the lotus-eaters. Bear Stearns is predicting 2004:II growth of 4.1% or lower. Merrill Lynch chief North American economist David Rosenberg thinks that the first quarter's 3.9% growth may be the year's high point. I'm on the lookout for anyone else coming to their senses before the second quarter GDP figures are released on Friday.

It's capital versus the new middle class in this November's fall classic.
Overall, Kerry's fundraising base is much different from Bush's. Kerry draws heavily on professionals with advanced degrees, academics, scientists and technology workers, in contrast to Bush's strong base in the business community. Bush has close to 100 major fundraisers -- Pioneers or Rangers, as the president's campaign calls them -- from the agribusiness, energy and power, construction, and transportation industries, compared with no more than half a dozen for Kerry.

According to PoliticalMoneyLine, five times as many corporate CEOs, presidents and chairmen gave to Bush as Kerry: 17,770 to 3,393. Conversely, the number of professors who gave to Kerry is 11 times the number of those who gave to Bush, 3,508 to 322. Actors split 212 for Kerry, 12 for Bush; authors, 110 to 3; librarians, 223 to 1; journalists, 93 to 1; and social workers, 415 to 32.
You couldn't hope for a clearer depiction of the class divide in this election. Have Washington Post reporters been studying classical political economy?

Call it "revenge of the symbolic analysts".

It's too bad this article is full of national statistics which don't mean much since there isn't a national housing market in the US. Still, some interesting data worth chewing on.
With the growth rate for home prices starting to slow, now may be the time to ponder what a bear market in real estate may bring. A recent study by two economists at Goldman Sachs provides some answers.

. . . the first three months of this year showed far slower growth than previous periods. Prices rose only 0.96 percent . . . More ominous, six states showed declines in housing prices in the first quarter: Vermont, Alaska, North Dakota, South Dakota, Iowa and Nebraska. No state had price declines in the previous quarter. . . .

In nominal terms, United States home prices are up 60 percent since 1995; in real terms, adjusted for inflation, they are up 37 percent. Viewed historically, home prices are up twice as much now as they were in the bullish real estate markets of both the mid-1970's and the 1980's.

As a percentage of disposable income, home prices are more than 18 percent above the long-term average. Prices exceeded that average by only 4 percent in the 1970's and 8.5 percent in the 1980's boom.

Michael Buchanan, a senior global economist at Goldman Sachs, and Themistoklis Fiotakis, a research assistant there, reckon that at current interest rates, home prices are now overvalued by 10 percent, on average. Because this figure spans the entire nation, the hottest markets - California and New York - are obviously more overpriced.
Of course, we're bound to hear Greenspan-speak now, that this housing market has broken the mold, we can have dramatically rising housing prices indefinitely due to productivity gains, population growth and global warming. Do I hear calls for a book? Say, "Bungalow $360,000"?
Consumption would slip 1 percent, Goldman estimated, if housing prices fell by 10 percent, to the fair value level. But if prices decline to well below that, as often happens when overheated markets go cold, consumption may fall by 2.4 percent, Goldman reckoned. . . .

One risk that looms large, however, is that United States policy makers would have few tools to cushion the fall if a housing decline gained real momentum. Interest rates are already so low and fiscal policy so loose that little could be done to ease the pain.

"This is one of a series of risks and imbalances that suggest there has been a price to the low-interest-rate policy that led the recession to be much shallower than it might otherwise have been," Mr. Wilson said. "Fiscal and monetary policy are both already fully utilized. If things go wrong from here, the U.S. finds itself in a more fragile position."

Sunday, July 25, 2004

I don't want to say "I told you so," but . . .
A red hot housing market and higher interest rates are pushing increasing numbers of US homebuyers into the most risky kinds of mortgages, spelling trouble for financially stretched consumers in years to come.

The Consumer Federation of America will on Monday release a report warning of a potential financial "time-bomb" due to an increasing interest among low-income consumers in adjustable-rate mortgages at a time of rising interest rates. . . .

Around two-thirds of all mortgage debt held by "sub-prime" borrowers - borrowers with poor credit histories - is in some kind of variable-rate product, up from around one-third in the mid-1990s, according to Fitch Ratings.

To be sure, many adjustable mortgage allow consumers to "fix" rates for a certain period of time - up to 10 years - making them useful options for short-term homeowners.

But the mortgages taken out by sub-prime borrowers typically adjust after just two or three years, making them particularly vulnerable to higher interest rates, according to Sarbashis Ghosh, a senior director at Fitch.

The increasing number of adjustable mortgages owned by sub-prime borrowers is potentially dangerous for investors. Homeowners with adjustable mortgages are more likely to default than homeowners with fixed mortgages and more than half of all mortgage loans issued in the US are packaged into securities and sold to institutional investors.

"Less-than-prime mortgage borrowers are thus effectively borrowing from investors willing to shoulder the higher risks involved," said Mark Zandi, chief economist at
For a post from earlier this month on the bubblicious California housing market, check out these stats and soak in all the sub-prime borrowers.
Californians are getting giddy over adjustable-rate mortgages (ARMs). In the Los Angeles Area, the percent of new mortgages with adjustable rather than fixed rates rose from 21% in 2003:I to 45% in 2004:I. In Sacramento there was a similar movement, from 20% to 47% over the same period. In the Bay Area the popularity of ARMs went from 36% to 56%, and in San Diego from 31% to a whopping 59%. Of the 32 largest housing markets in the US, only Chicago and Denver even come close to depending on ARMs as much as do the four markets in California, but price appreciation in these cities has been far less than in the Golden State.

Friday, July 23, 2004

The General has been blogging the fall in real wages over the last 6 months or so in the US, but Richard Berner at Morgan Stanley thinks that's a bunch of hooey.
. . . I think that the fears of wage compression are overblown. A look at other wage metrics paints a brighter income picture. . . . commonly-used wage data obscure recent macro wage income performance. As I see it, the energy and food price shocks explain recent consumer weakness (see �A Whiff of Stagflation? Global Economic Forum, July 16, 2004). In my view, those price shocks halted real wage growth in the first half of 2004. Looking ahead, even merely stable energy and food prices would promote 1�-2% real wage growth in the next six months, correctly gauged.
Let's stop right there. Wages deflated by CPI have fallen 2.49% for production workers -- the bottom 80% of the pyramid -- since November 2003. It is true, however, that most inflation has been driven by food and energy prices. So what do production worker wages look like when deflated by core CPI which removes food and energy? Down 1.34% since the recent high in January 2004. So Berner doesn't get off the hook there. But as it turns out, Berner isn't all that interested in inequality anyway.
Production and nonsupervisory workers represent 81% of the workforce, but account for only about 50% of total nonfarm private wages and salaries. So with nonproduction worker and supervisory pay rates growing significantly faster than those for lower-ranking occupations, AHE [average hourly earnings] misses income growth. For example, ECI data show that professional wages and salaries rose by 3.3% over the year ending in March, while blue collar pay rates rose 2.3% and wages and salaries in service occupations rose by 1.8% over the same period.
Well this is a no brainer. As the General pointed out a while back, overall real wages are down 1.4% since November while wages for production workers are down 2.5%. It doesn't take a genius to figure out that if the overall number is down, and the bottom 80% is way down, then the top 20% has to be up.

Then Berner chants the old liberal mantra:
The growing wage gap between high- and low-paying jobs highlighted in different wage measures is a real phenomenon, reflecting the mismatch in our labor force between skills available and skills needed. It thus reflects one of America�s major long-term challenges: How to improve educational outcomes for a more complex society and to reflect the new skills demanded in ever-changing labor markets.
We all know that every economy requires low-skill low-wage labor. Does Berner really think we're going to live in a society without security guards, retail clerks and nurses aides? We're all going to be "knowledge workers"? Give me a break. Dignity and fair wages to all forms of work, not neoliberal fantasies, please.

Time for the bear to rear it's head.

A marked slowdown for the US in the second half of 2004 looks to be a sure bet. Japan's robust recovery still looks highly dependent on exports, both to the slowing US and, as Stephen Roach tells us today, overheating China.
The China slowdown has barely begun. Yet the latest spin is that a soft landing may now be close at hand. Nothing could be further from the truth. Chinese economic activity is still expanding at a torrid and unsustainable pace. The nation�s authorities cannot afford to ease off on their campaign of policy restraint. If they do, an overheated Chinese economy runs the serious risk of a destabilizing hard landing.

. . . Industrial output growth held at 16.2% in June -- down only marginally from peak comparisons of 19.4% in the first two months of this year and well above the 10% trend-line increases of the past 10 years. At the same time, the growth in energy generation barely moderated from 16.6% in May to 14.3% in June -- although it may well be that this �slowing� was more an outgrowth of the widespread power shortages of an overheated economy. In my view, the industrial output comparison needs to move into the 8% to 10% zone -- and then stay there for at least six months -- before a legitimate soft landing can be declared. From that point of view, China�s slowdown is, at best, only about 25% complete.

. . . there has been little let-up in China�s impact on economic activity elsewhere in the world -- yet another corroboration of the limited slowdown in the Chinese economy. In large part, that�s because Chinese import growth -- a good proxy for this nation�s impact on the rest of the world -- continues to power ahead. China�s purchases of foreign-made products accelerated sharply in June, surging at a 50.5% Y-o-Y rate -- well above the 40% gains recorded in 2003. . . . When Chinese industrial activity turns more decisively to the downside, as I continue to believe it will, the impacts on the global economy could be quite significant.
All this being said, Roach thinks China will not overheat and crash. He's more concerned that financial markets will price in a hard landing that isn't coming. So how's that for Roach -- he gives you a peek of optimistm only to snatch it away from you at the end.

Hmm, maybe I spoke too soon Wednesday about Japan's self-sustaining recovery (from FT).
Growth in Japan's exports picked up sharply in June, soothing fears that the strength of external demand driving a recovery in the world's second largest economy was waning.

Exports were up 19.4 per cent from a year ago at Y5,288bn, the best monthly growth so far in 2004, according to finance ministry data released on Thursday.

The figures marked an end to a recent slide in the pace of export growth, which slipped from 13 per cent in March to under 10 per cent in May and led some economists to suggest the external demand cycle had peaked.

. . . Japan's trade surplus expanded by almost 37 per cent from a year ago to Y1,147bn.

We're back to a four-digit Dow.
U.S. stocks fell on Friday, dragged lower by disappointing results from Coca-Cola Co. and a softer profit outlook issued by Microsoft Corp..

For the second day in a row, the Dow Industrial Average slipped below the psychologically key 10,000 level. The blue-chip index dropped below the mark several times in the previous session in volatile trading, but rebounded to end the day higher. . . .

"I think the market is disappointed with what they've seen out of the earnings season and with the economy potentially slowing in the second half ... That implies if earnings are only ordinary in the second quarter they can only get worse in the third quarter," said Peter Boockvar, equity strategist at Miller Tabak & Co.
The Dow dipped all the way down to 9,906.62 on Thursday before bouncing up to close at 10,050.33. That was the first time since late May that the Dow was under the magic 10,000. Since hitting its recent peak in mid-February, the Dow has been on an inconstant downward slide, suggesting the still-outrageous P/E ratios built up over 2003 were, just as in the late 1990s, built on dreams and sand.

All this makes those forecasts of 2004 GDP growth put out by the "experts" look more and more foolish. Not as ridiculous as Dow 36,000 mind you . . .

Thursday, July 22, 2004

The New York Times is on a pro-abortion tear. First it was Amy Richards. Now today it is Barbara Ehrenreich. I thought nobody could be worse than Thomas Friedman. I was wrong.
Abortion is legal - it's just not supposed to be mentioned or acknowledged as an acceptable option. . . . You can blame a lot of folks, from media bigwigs to bishops, if we lose our reproductive rights, but it's the women who shrink from acknowledging their own abortions who really irk me. . . .

Honesty begins at home, so I should acknowledge that I had two abortions during my all-too-fertile years. You can call me a bad woman, but not a bad mother. I was a dollar-a-word freelancer and my husband a warehouse worker, so it was all we could do to support the existing children at a grubby lower-middle-class level. And when it comes to my children - the actual extrauterine ones, that is - I was, and remain, a lioness.

Choice can be easy, as it was in my case, or truly agonizing. But assuming the fetal position is not an appropriate response. Sartre called this "bad faith," meaning something worse than duplicity: a fundamental denial of freedom and the responsibility that it entails. Time to take your thumbs out of your mouths, ladies, and speak up for your rights. The freedoms that we exercise but do not acknowledge are easily taken away.
This is not a "pro-choice" argument, it is a pro-abortion argument. What is Ehrenreich saying? Nothing more or less than that abortion is a Good Thing that women should take full ownership and pride in.

One can complement Ehrenreich on her refusal to abdicate responsibility for her moral choices. The fact that she justifies them so shamelessly, however, should frighten us all. She does not shrink from the acknowledgment that through abortion she killed two of her "children"; that a fetus is a "baby"; and that relative poverty is a morally justifable ground for eliminating human life (that is, poor people aren't worth as much as rich people, and why don't those Africans just kill more of their "children" already and stop being poor?).

Ehrenreich is a self-professed "lionness" when it comes to defending her "extrauterine" children, but those children know that their lives are built upon the deaths of their siblings -- deaths which their mother maintains were Good Things.

Elizabeth Cady Stanton, one of the greatest American feminists, said "When we consider that women are treated as property, it is degrading to women that we should treat our children as property to be disposed of as we see fit." That feminists today would look to trailblazers such as Stanton instead of NOW!

I suspect these recent articles by Richards and Ehrenreich will have exactly the opposite effect of their intentions. They reveal the truth about the moral values of those who most radically support abortion rights: that abortion is infanticide (as Elizabeth Cady Stanton called it) and that infanticide is OK.

Alexander Cockburn has a piece in today's Los Angeles Times that is sure to boil the blood of all liberals.
Always partial to monopolies, the Democrats think they should hold the exclusive concession on any electoral challenge to George W. Bush and the Republicans. The Ralph Nader campaign prompts them to hysterical tirades. Republicans are more relaxed about such things. Ross Perot and his Reform Party actually cost George H.W. Bush his reelection in 1992, yet Perot never drew a tenth of the abuse that Nader does now.

Of course, the Democrats richly deserve the challenge. . . .

The rationale for his challenges has been as sound as that of Henry Wallace was half a century earlier. I quote from "The Third Party," a pamphlet by Adam Lapin published in 1948 in support of Wallace and his Progressive Party. "The Democratic administration carries the ball for Wall Street's foreign policy. And the Republican Party carries the ball for Wall Street's domestic policy . . ."
How little has changed in 55 years! But I digress.
Let us suppose that a Democratic candidate arrives in the White House, at least rhetorically committed to reform, as happened with Jimmy Carter in 1977 and Clinton in 1993. Both had Democratic majorities in Congress. Battered from their first weeks over unorthodox nominees and for any deviation from Wall Street's agenda in their first budgets, both had effectively lost any innovative purchase on the system by the end of their first six months, and there was no pressure from the left to hold them to their pledges. By the end of April 1993, Clinton had sold out the Haitian refugees, put Israel's lobbyists in charge of Mideast policy, bolstered the arms industry with a budget in which projected spending for 1993-94 was higher in constant dollars than average spending in the Cold War, put Wall Street in charge of national economic strategy, sold out on grazing and mineral rights on public lands and plunged into the "managed care" disaster.

One useful way of estimating how little separates the parties, and particularly their presidential nominees, is to tote up some of the issues on which there is tacit agreement, either as a matter of principle or with an expedient nod and wink that these are not matters suitable to be discussed in any public forum: the role of the Federal Reserve; trade policy; economic redistribution; the role and budget of the CIA and other intelligence agencies; nuclear disarmament; allocation of military procurement; reduction of the military budget; the roles and policies of the World Bank, International Monetary Fund and kindred multilateral agencies; the war on drugs; corporate welfare; energy policy; the destruction of small farmers and ranchers; Israel.

In the face of this conspiracy of silence, the more independent challenges the better. Nader is doing his duty.
Now I wouldn't go as far as Cockburn does, but do note that there is not a whit's worth of difference between the foreign policies of Bush and Kerry. The Republicans are downright scary on domestic issues, with the budget, tax cuts and labor policy being at the top of my list, but Kerry is only marginally better.

Is "marginally better" on domestic policy worth connecting the arrows for Kerry on November 2, knowing that his foreign policy might actually be worse than Bush's? I'll let you decide that for yourselves.

A new name for The New IraqTM: The Money Pit.
The U.S. military has spent most of the $65 billion that Congress approved for fighting the wars in Iraq and Afghanistan and is scrambling to find $12.3 billion more from within the Defense Department to finance the wars through the end of the fiscal year, federal investigators said yesterday. . . .

The Army, which is overspending its budget by $10.2 billion for operations and maintenance, is asking the Marines and the Air Force to help cover the escalating costs of its logistics contract with Halliburton Co. But the Air Force is also exceeding its budget by $1.4 billion, while the Marines are coming up $500 million short. The Army is even having trouble paying the contractors guarding its garrisons outside the war zones, the report said.

. . .The hard-hit Army faces a $5.3 billion shortfall in funds supporting deployed forces, a $2 billion budget deficit for the refurbishing of equipment used in Iraq and a $753 million deficit in its logistics contract. The Army also needs $800 million more to cover equipment maintenance costs and $650 million to pay contractors guarding garrisons.
You may recall that back in late 2002 Yale economist William Nordhaus estimated the costs of the Iraq war in the hundreds of billions of dollars. Occupation and peacekeeping costs alone were estimated to be in the range of a low of $7.5bn to a high of $50bn annually.

But the GAO tells us that in FY2004 alone the Congress allotted $51bn for "ongoing military operations in Iraq" and the military needs another $12.3bn to make it to the end of October. Thus the actual figures blow even Nordhaus' most pessimistic estimates away!

Somehow the US military always seems to find just one more tactic to bring in more troops for Iraq that is more desperate than the last.
In what critics say is another sign of increasing stress on the military, the Army has been forced to bring more new recruits immediately into the ranks to meet recruiting goals for 2004, instead of allowing them to defer entry until the next accounting year, which starts in October.

As a result, recruiters will enter the new year without the usual cushion of incoming soldiers, making it that much harder to make their quotas for 2005. Instead of knowing the names of nearly half the coming year's expected arrivals in October, as the Army did last year, or even the names of around one in three, as is the normal goal, this October the recruiting command will have identified only about one of five of the boot camp class of 2005 in advance. . . .

"I worry about this every single day - recruiting and retention," said General Hagenbeck, who commanded forces in Afghanistan in his previous assignment. "We are recruiting a volunteer force during a time of war. We've never done that before."
When does this end? There are three possibilities, from least to most likely: [1] dramatic reduction in troop levels in Iraq and Afghanistan before the end of 2005, eliminating high troop demand; [2] dramatic crash in the US job market, generating higher troop supply; or [3] military draft in 2004.

Wednesday, July 21, 2004

Overall I think Kevin Drum is a good guy, but his comments on "selective reduction" abortion are not only stomach-churning but bone-chilling as well.
If you're pro-life, and you think abortion is an abomination anyway, why is aborting two out of three fetuses any worse than aborting them all, as people do all the time? Both emotionally and intellectually, I don't get it.

And if you're pro-choice, why the sudden concern with motive? It's unfair anyway, since the "Staten Island" crack is what most people are focusing on, even though that's obviously just a metaphor: Richards says pretty clearly that she's concerned that triplets would prevent her from working and make her into a full-time housewife, and that's not what she wants. What's wrong with that?
I would think any child of a woman who had an abortion is facing the same kinds of issues as an adopted child. While the adopted child at some point asks "why didn't my mother want me? Why was I rejected?", the unaborted child at some point asks "why did my mother want me? Why wasn't I rejected?" What is worse, of course, is that the unaborted child didn't simply face the possibility of emotional rejection, but the end of his/her life. This is intensely acute for the survivor of "selective reduction" abortion, who lived thanks to luck more than anything else. Mom killed (for you pro-choicers, "eliminated" might work instead) my brother and sister but not me -- why? What's so special about me and so terrible about them?

And mom says, "Well, Billy,"
I would have to give up my main income for the rest of the year. . . . I'd have to give up my life . . . I wouldn't be able to fly . . . I'll never leave my house because I'll have to care for these children. I'll have to start shopping only at Costco and buying big jars of mayonnaise. . . . [I would miss] the Boston Pops concert at Symphony Hall.
"In short, Billy, your brother and sister were simply too inconvenient. They had to be eliminated. But you . . ."

Better not get too "inconvenient," Billy. Mother's love only goes so far.

Is the global economy finally finding a second engine?
Japan almost doubled its economic growth forecast for the current fiscal year on Wednesday, bringing its view in line with private economists who see an upturn in domestic demand adding momentum to an export-led recovery.

The Cabinet Office said in its latest forecast that real gross domestic product (GDP) growth, which takes into account price changes, could be 3.5 percent in the year ending March 2005, up from its earlier forecast of 1.8 percent, making it the fastest pace in eight years. . . .

The Cabinet Office said it now forecast consumption in the private sector to rise 2.6 percent in the current year rather than 1.1 percent as previously seen.

It forecast corporate investment to rise 9.9 percent rather than a previous 7.2 percent.

That shows, one top government official said, that the export-led recovery was filtering through to the rest of the economy.

"The broadening of the economic recovery is becoming clearer. Smaller firms were lagging big firms quite a bit, but now (the recovery) is spreading to them," Hideji Sugiyama, vice minister for economy, trade and industry, told Reuters in an interview.
Up to now the Japanese recovery has been almost solely export-led, thus Japan riding the coattails of US and Chinese consumption rather than its own. With China cooling and US growth uncertain at best, autonomous Japanese growth is just what the global econ doctor ordered.

Deflation is still strong in Japan, however, and likely to persist right through not only 2004 but 2005 as well. Ultra-loose monetary policy should persist in Japan for some time, but will they keep buying US treasuries and corporate debt?

Rebecca McCaughrin at Morgan Stanley's office in London has a very interesting little discussion concerning the imminent demise of a strange macro phenomenon.

The General has noted before that even though the US net investment position is massively negative and has been increasingly so since the late 1980s, US net investment income magically remains positive. For example, in 2003 the US net investment position was a whopping -$2.43 trillion (that's -22% of GDP; -24% at market value). US net investment income, however, was surprisingly positive -- $33.3bn -- as it has been throughout recent history, flying directly in the face of the country's ever-growing status as the "world's largest debtor". While this disconnect has persisted since 1986, McCaughrin thinks it is about to end.
In our view, the confluence of rising US rates relative to the rest of the world, a stronger dollar, and converging rates of return on portfolio investment will likely exacerbate US imbalances . . .

. . . According to our FX team, the dollar correction has run its course, and by next year should begin to appreciate against the EUR, JPY, and GBP. With UK, Euroland, and Japanese assets representing roughly two-thirds of gross assets (US-owned foreign assets) and liabilities (foreign-owned US assets), even a small adjustment in exchange rates can have a significant impact on servicing costs. A stronger dollar will exacerbate the debt service burden since it decreases gross assets and receipts on US foreign-currency holdings, but will have little impact on gross liabilities, which are mostly dollar-denominated. . . .

. . . higher US interest rates mean interest payments rise more than receipts, exacerbating the debt service burden. . . . US investors hold a lower share of debt in their foreign portfolios -- just 7% of gross assets -- whereas foreigners have a much larger concentration, with government and private holdings of debt accounting for nearly 40% of gross liabilities. Liabilities should thus be more sensitive to interest rate movements than are assets. As US rates rise relative to the rest of the world, interest payments will increase by more than receipts. . . .

. . . converging rates of return on other private investment should enlarge the deficit in net income on portfolio and other private investment, as net external liabilities continue to grow. . . . The rate of return earned by US investors on their overseas portfolio investment used to exceed returns earned by foreigners. However, the gap has eroded over the last several years, and US investors now generate a return that is only 0.3% larger. As this trend plays out, and foreigners demand a return at least equal to the return US investors receive from their overseas investments, interest payments will rise further relative to receipts.
I'm a bit skeptical about the strengthening dollar over the near-term, but the interest rate and profit rate stories are spot on. If the stronger dollar turns out to be correct, this combination will send the current accout deficit into the nether regions in no time.

Consider this. If US net investment income had simply been zero for 2003, the current accout deficit as a percentage of GDP would have been 5.1% rather than the actual 4.8%. If the +$33bn had instead been -$33bn -- much more in line with the -$2.43 trillion net investment position -- the current account deficit for 2003 would have been 5.5% of GDP. The soft-landing story Republicans are so fond of is going to start pulling out to sea.

Can anybody say "debt trap"?

Adam Hersh over at Globalize This! notices how WTO Director General Supachai Panitchpakdi is starting to get nervous that the Doha Round is grinding to a halt yet again. Today's FT tells us that France in particular says
a draft deal aimed at putting stalled global trade talks back on track was unacceptable in its current form and called for a substantial redraft of the text.

President Jacques Chirac said the draft, presented by mediators at the World Trade Organisation (WTO) last week, was "profoundly unbalanced" and contrary to the interests of the European Union.

"France wants to see the conclusion of the Doha Round (of trade talks), but it cannot give its agreement to negotiations on such a basis," Chirac said in a statement.

Chirac said the European Commission should do everything in its power to rebalance the text.
Ah, and just when you thought it was safe to attend that next WTO Ministerial and rub elbows at Davos.

Adam also examines the fine print of World Bank publications and comes up with this gem.
Even the most rose tinted analyses point to slim to no benefits from the Doha Round. The World Bank predicts that, e.g., Sierra Leone's per capita GDP would blossom to a whopping $592 by 2015 thanks to the Doha Round. Oh, but without Doha, it would be $583 in 2015. All this fuss for $9 each? Hell, the rich countries and the WTO could just give $9 to every Sierra Leonian rather than spending all this money shipping trade ministers around the world to convene in luxurious ballrooms and stay in five star hotel suites.
Adam doesn't mention all the costs of neoliberal globalization which the World Bank ignores, such as stockpiling currency reserves in US banks rather than investing that capital locally. Even $9 per capita is a stretch.

Tuesday, July 20, 2004

More reason to think George W. might thump his staff on the Strategic Petroleum Reserve rock in the fall and release a flood of oil onto the market.
Weekly US data from the Energy Information Administration are expected to show a 1.2m barrel rise in crude inventories, a 980,000 barrel drop in gasoline stocks and a 900,000 barrel increase in distillate inventories - much lower than in the previous two weeks.

Traders remained concerned that oil stocks in the US might not be building up quickly enough to cope with rising demand in the winter. Global oil stocks now represent only 69 days of forward cover compared with 80 days just three years ago.

"It is little wonder the market is so concerned over capacity shortages and potential supply disruptions when there is so much less of a buffer to counter them," said the Centre for Global Energy Studies.
Hey, the General can do a little fortune-telling as well.

The Bond Market Association says 4.7%. The Blue Chip survey says 4.5%. Now Uncle Alan says, hedging himself all the way down the row,
that annual growth in 2004 would be 4.25 to 4.75 percent, down slightly from its forecast in February that growth could reach 5 percent.
All these glimpses into the crystal ball need 2004:II GDP growth to be pushing 5% or higher in order to make up for 2004:I's underperforming 3.9%. With all the weak data for June combined with big trade deficits for April and May, 5% looks pretty damned optimistic. But we shall see. We shall see.

Just because car prices are experiencing slow-motion deflation and sales sans incentives tanked last month doesn't mean you can't triple your profits.
The Ford Motor Company reported a $1.17 billion second-quarter profit on Tuesday, nearly tripling its earnings from the period a year earlier.

But analysts are concerned that Ford relied so heavily on its lending division in the quarter and lost money in its core business: making cars and trucks. . . .

For the second quarter, Ford's net income of $1.17 billion, or 57 cents a share, was up from $417 million, or 22 cents a share, in the period a year earlier. Ford Credit, which offers loans to car buyers, contributed $897 million, more than doubling its profit from a year earlier. Ford Credit is reimbursed by the automotive group for the cost of offering no-interest loans, a situation that benefits the credit division but erodes the auto division's bottom line.
Like so much of the US economy, moving out of M-C-M' and straight into M-M' seems the way to go. As Giovanni Arrighi argues convincingly, financialization is the beginning of the death throes of a production model and a hegemonic economy, but hell, the City did pretty well while Britain crumbled around it, so I'm sure Wall Street won't mind playing the same role.

June 2004 is looking like a real clunker all around.
Home builders took a breather in June, sending housing construction down to its lowest level in just over a year. It was another sign the economy slowed down last month.

The number of housing projects launched by builders clocked in at a seasonally adjusted annual rate of 1.80 million units, an 8.5 percent drop from May's level, the Commerce Department reported Tuesday.
So let's make a June tally for the US economy: manufacturing growth down, services growth way down, employment growth down, retail sales down, real wages flat out down, and now housing starts down, too.

We have to wait until July 30 for the first estimates of second quarter GDP, but in light of this overall picture combined with the #1 and #3 trade deficits of all time in April and May, 2004:II growth can't be any better than it was in 2004:I, i.e. 3.9%. If it is lower, that will be three quarters in a row of slowing economic activity.

This is about as unexpected as thunderstorms in July.
With tens of thousands of their citizen soldiers now deployed in Iraq, many of the nation's governors complained on Sunday to senior Pentagon officials that they were facing severe manpower shortages in guarding prisoners, fighting wildfires, preparing for hurricanes and floods and policing the streets.

Concern among the governors about the war's impact at home has been rising for months, but it came into sharp focus this weekend as they gathered for their four-day annual conference here and began comparing the problems they faced from the National Guard's largest callup since World War II. . . .

Much of the concern has focused on wildfires, which have started to destroy vast sections of forests in several Western states. The governor of Oregon, Ted Kulongoski, a Democrat, said in an interview after meetings here Monday that the troop deployment had left his National Guard with half the usual number of firefighters because about 400 of them were overseas while a hot, dry summer was already producing significant fires in his state. . . .

Gov. Dirk Kempthorne, a Republican of Idaho and departing chairman of the National Governors Association, also said through a spokesman that he was worried about the deployment of 2,000 members, or 62 percent of his National Guard, who are now training in Texas for a mission in Iraq. . . .

In Arizona, officials say, more than a hundred prison guards are serving overseas, leaving their already crowded prisons badly short-staffed. In Tennessee, officials are worried about rural sheriff's and police departments, whose ranks have been depleted by the guard call- up. In Virginia, the concern is hurricanes; in Missouri, floods. And in a small town in Arkansas, Bradford, both the police chief and the mayor are now serving in Iraq, leaving their substitutes a bit overwhelmed.
This is the real entre for a military draft next year. The future president -- Bush or Kerry, it doesn't matter -- can sell it as "mandatory public service" with young Americans drafted into the National Guard. Most of those won't go to Iraq, or Iran, or wherever the next war will be. But some will.

Monday, July 19, 2004

Funny how back in June everyone was running around like chickens with their heads cut off when NYMEX crude prices rose over $40/barrel. On Friday oil closed at $41.25/barrel, yet hardly a peep from the press.
Crude oil futures prices began to climb back up on Monday following a brief flurry of profit taking as news of an attack on a pipeline in northern Iraq hit the trading floors.

Saboteurs blew up a secondary pipeline that runs through al-Debis region, north-west of Kirkuk, Hadi Mustafa, local district chief, reported.

The attack followed violence over the weekend, which began with a US air strike on Fallujah, apparently backed by the interim government and targeting positions said to be held by al-Qaeda-linked foreign fighters.

On Monday, a fuel tanker driven at a police station in Baghdad was exploded, killing nine and injuring more than 50 people.

Having slipped back to $40.72 a barrel in early trade following profit taking in the wake of Friday's short covering, Nymex crude for August rose to $41.04 in electronic trade - 21 cents lower on the day.
CNN/Money notices that
. . . world spare capacity [is] at its lowest level for more than a decade . . .

Commerzbank's Turner said confirmation last week by the Organization of the Petroleum Exporting Countries (OPEC) that it will lift official output levels from August 1 by 500,000 barrels per day (bpd) would have little effect on supply.

"Most OPEC members that are not constrained by capacity are already overproducing their August 1 quotas, so this will have very little impact on physical supply," Turner said.

The producers' cartel, which controls 50 percent of global crude exports, is thought to be pumping at its highest levels since December 1979.
Don't forget what the General reported back on July 9:
The IEA estimates global oil demand at 80.6 mb/d for 2004:III and 82.6 mb/d for 2004:IV. Non-OPEC supply is pretty much fixed in the short-term (quarter-to-quarter) at about 50 mb/d. OPEC's "sustainable production capacity" is estimated to be 30.6 mb/d -- and that's including Iraqi production. Do the math and you're looking at supply and demand being exactly equal for the third quarter, but demand far outstripping supply in the fourth.
Come October we may be remembering $40/barrel as a fond memory -- unless George W. decides it's time to dip into the Strategic Petroleum Reserve.

Stay tuned.

Saturday, July 17, 2004

If you've been reading the Globblog then you already know this. Still, it's nice that the New York Times is picking up the story as well since their readership is a bit larger than mine.
The amount of money workers receive in their paychecks is failing to keep up with inflation. . . .

Even though the economy has been adding hundreds of thousands of jobs almost every month this year, stagnant wages could put a dent in the prospects for economic growth, some economists say. If incomes continue to lag behind the increase in prices, it may hinder the ability of ordinary workers to spend money at a healthy clip, undermining one of the pillars of the expansion so far. . . .

On Friday, the Bureau of Labor Statistics reported that hourly earnings of production workers - nonmanagement workers ranging from nurses and teachers to hamburger flippers and assembly-line workers - fell 1.1 percent in June, after accounting for inflation. The June drop, the steepest decline since the depths of recession in mid-1991, came after a 0.8 percent fall in real hourly earnings in May.

Coming on top of a 12-minute drop in the average workweek, the decline in the hourly rate last month cut deeply into workers� pay. In June, production workers took home $525.84 a week, on average. After accounting for inflation, this is about $8 less than they were pocketing last January. And it is the lowest level of weekly pay since October 2001.

. . . coming after the bonanza of the second half of the 1990�s, the first period of sustained real wage growth since the 1970�s, the current slide in earnings is a big blow for the lower middle class. Moreover, the absence of lower income households could also weigh on overall economic growth � putting a lid on the mass market and skewing consumption toward high-end products.

"There�s a bit of a dichotomy," said Ethan S. Harris, chief economist at Lehman Brothers. "Joe Six-Pack is under a lot of pressure. He got a lousy raise; he�s paying more for gasoline and milk. He�s not doing that great. But proprietors� income is up. Profits are up. Home values are up. Middle income and upper income people are looking pretty good."
Real wages (NSA) for production workers topped out under George W. at $8.43/hr. (in 1982-84 dollars) in December 2002 ($15.25 at the time). They dipped throughout most of 2003 but rose again to their most recent high of $8.41/hr. (1982-84 dollars) in November -- and it's been a skid down the Matterhorn ever since. In June real wages for production workers had sunk to $8.20/hr. (1982-84 dollars), down 2.5% since November. This is a much steeper decline than for the broader workforce, which has seen its real wages decline 1.4% since November.

Clearly production workers -- roughly 80% of the US workforce -- are absorbing all the body blows from this "recovery". Real wages of supervisory workers are up, corporate profits are way up, but the little guy is getting screwed.

Is Brad DeLong encouraging us to eat the unemployed?
We live in a time when productivity is growing at between 3% and 4% per year--and thus when real earnings if the labor market were in balance would be growing at the same rate. Yet that's not what's happening: the past year alone has seen the gap between real earnings and labor productivity widen by 5%.

I can't see any way to read this other than that there is *enormous* excess supply in the labor market, and that we are still very far away from anything that might be called full employment--enormous slack in the economy.
One assumes DeLong doesn't have a modest proposal up his sleeve, but he does fall victim to typical liberal economic rhetoric when he pegs excess labor as the cause of the trouble rather than a shortage of capital -- or rather a shortage of capital available to serve the public interest.

That being said, I have heard that a child will make two dishes at an entertainment for friends, and when the family dines alone, the fore or hind quarter will make a reasonable dish . . .

Plus �a change, plus c'est la m�me chose.
Iyad Allawi, the new Prime Minister of Iraq, pulled a pistol and executed as many as six suspected insurgents at a Baghdad police station, just days before Washington handed control of the country to his interim government, according to two people who allege they witnessed the killings.

They say the prisoners - handcuffed and blindfolded - were lined up against a wall in a courtyard adjacent to the maximum-security cell block in which they were held at the Al-Amariyah security centre, in the city's south-western suburbs.

They say Dr Allawi told onlookers the victims had each killed as many as 50 Iraqis and they "deserved worse than death".

Friday, July 16, 2004

Who said the following?
"I will never allow any other country to veto what we need to do and I will never allow any other institution to veto what we need to do to protect our nation."
If you said George Bush, go to the back of the class. If you said John Kerry, give yourself a gold star.

Not only is Kerry recycling Bush's ideas, he is parroting Bush's language, too, and playing right into all the assumptions which underlie Bush's conception of the world. I'm getting more worried that Kerry isn't simply Bush Lite. He could very well be Bush Malt Liquor.

The American Enterprise Institute chimes in today on the wisdom of planning a Bush coup d'etat in November.
Long before the Madrid terrorist bombings, it was clear that the 2004 American presidential election would be a prime target for al Qaeda. Now that threat has been made even more concrete and tangible by the warning from Homeland Security Secretary Tom Ridge. And the need to protect against the worst kinds of disruptions caused by an attack has been crystallized by a letter sent to Ridge by DeForest B. Soaries Jr., chairman of the newly created U.S. Election Assistance Commission, warning that no agency has the authority to suspend or postpone a presidential election if a disaster occurs.

No doubt the Department of Homeland Security, the FBI and other agencies will work to their utmost to prevent an attack or attacks targeting our elections. But that is not enough. Should an attack occur, there are dozens of unanswered questions, along with gaps in law and the Constitution, that could create chaos or worse. The failure so far to grapple with the problems has left us with precious little time to fill the most serious gaps.
Note that Ornstein goes beyond simply postponing to suggest the election might be suspended indefinitely.  Condi Rice publicly turned down the idea earlier this week (why is the National Security Advisor the one to speak out on this?), but clearly the neocons at AEI -- the Bush administration's intellectual shock troops -- are determined to keep the idea alive.

Even with inflation being tamed once again, real wages continue to slide.  In June real private sector hourly wages were $8.20 (in 1982 dollars), down 1.4% since November 2003.  This decline in real wages is not only the sharpest of the Bush administration's tenure.  You have to go all the way back to 1990-91 to find a sharper (1.9% in 6 months) plunge.  At least Poppy Bush had an excuse as his was in the midst of a recession.  But Dubya's is in the middle of a "robust recovery"!

It looks like we can all calm down now on the inflation front.
Consumer prices rose a modest 0.3 percent in June, half the size of the previous month's advance and fresh evidence that inflation poses no immediate threat to the economy.

The over-the-month increase in the Consumer Price Index -- the government's most closely watched inflation barometer -- followed a 0.6 percent spike in May, reflecting a big jump in energy and food costs, the Labor Department reported Friday. In June, energy and food costs went up, but not by nearly as much. That helped to moderate overall consumer prices and brought a little bit of relief to Americans who have been forced to dig deeper into their pockets to fill up their gasoline tanks and buy groceries.

Excluding energy and foods costs, ``core'' prices nudged up by just 0.1 percent in June, down from a 0.2 percent rise in May and the smallest increase since December 2003. From an economic point of view, that deceleration suggested prices of other goods and services were relatively stable.
As the General has been reporting all week, prices are down all over the economy: agricultural commodity prices, import prices, export prices, producer prices.  Now consumer prices are finally beginning to catch up.  The big changes are in food and energy costs.  Food was up just 0.2% on the month, and food at home only 0.1%.  If it wasn't for dairy and booze there would have been almost no food/beverage inflation at all.  Energy was up 2.6%, remaining the only real driver of inflation now.  But that was down from a big 4.6% rise in May.  If NYMEX crude prices stay below $40/barrel (a big if, I grant you), we may be back to the days of 1% inflation in no time.
Annual core inflation now stands at a meager 1.9%.  Granted that's a lot higher than the 1.1% of last winter, but a far cry from the mid-2%s of Clinton's second term, the high-2%s and low-3%s of his first term, or the 4%s and 5%s of Bush I.
And besides, it's about time we get back to talking about deflation anyway.

Thursday, July 15, 2004

It's Thursday, so I'll take this small opportunity to toot my own horn. Yesterday I noted that agricultural commodity prices have been plummeting over the past two months, and suggested the bloom may already be off the rose of the recent US flirtation with general inflation. The producer price index report released this morning confirms the analysis.
The Bureau of Labor Statistics of the U.S. Department of Labor reported today that the Producer Price Index for Finished Goods decreased 0.3 percent in June. This decline followed a 0.8-percent rise in May and a 0.7-percent increase in April. Prices for finished goods other than foods and energy went up 0.2 percent in June, as opposed to a 0.3-percent increase in the prior month. At the earlier stages of processing, prices
received by manufacturers of intermediate goods rose 0.5 percent, compared with a 1.1-percent jump in the preceding month. The index for crude materials advanced 1.6 percent in June, after posting a 2.8-percent rate of increase a month earlier.
The PPI for food fell sharply, -0.6%, after three straight months of monthly inflation over 1.2%. This effect should start showing up in the consumer price index soon. Food and beverages make up 15.4% of the CPI, and outside of gasoline (3.2% of the CPI; always having its ups and downs) and medical care and education (together composing 8.9% of the CPI; perennial sites of inflation), contributed the most to US consumer inflation this past year. It's high rate of inflation plus its weight in the CPI means that falling food prices should take a huge bite out of consumer inflation.

Core producer prices are not yet falling, and neither are prices of intermediate or crude goods -- yet. We are seeing marked disinflation however. Oil seems happy to hover around $40/barrel, commodity prices are retracting, and manufacturing overproduction is still the underlying story. The real interesting twist in all of this is that the Fed may stop raising interest rates. I'd be surprised if they stay at 1.25% for long, but 1.5% may be a resting place for a while.

So, I've had more than a few complaints about Blogger's amazingly user-unfriendly system of posting comments on this site. Therefore light blogging today, heavy upgrading. I'll try Haloscan and see what happens.

Wednesday, July 14, 2004

Sy Hersh must be getting very very close to putting the story of the sexual torture of children at Abu Ghraib in print. From via DeLong:
Seymour Hersh says the US government has videotapes of boys being sodomized at Abu Ghraib prison in Iraq.

"The worst is the soundtrack of the boys shrieking," the reporter told an ACLU convention last week. Hersh says there was "a massive amount of criminal wrongdoing that was covered up at the highest command out there, and higher." . . .

He called the prison scene "a series of massive crimes, criminal activity by the president and the vice president, by this administration anyway�war crimes."

The outrages have cost us the support of moderate Arabs, says Hersh. "They see us as a sexually perverse society."
Maybe the Arabs are exactly right. If you think the United States isn't a sexually peverse society, you don't get out from under your rock much.

Considering new and used vehicle prices in the US have been in a minor freefall since January 2002, the news that motor vehicle sales tanked 4.3% in June can't be good. More deflation on the auto front.

The BLS reports today that import deflation made a special guest appearance last month, too. Prices on all imports fell 0.2% in June; no change on non-petroleum imports. This was the lowest import inflation level since October 2003.

Even more interesting was the big price fall in US exports. Non-ag export prices fell 0.1%, the first whiff of export price deflation since September 2003. Agricultural export prices, however, fell through the floor in June: -4.6% in a single month! The Commodity Research Bureau's foodstuffs price index is changed -7.5% since April; grains are changed -18% over the same two months. This may be a very rude ending to the ag commodity inflation running rampant since last fall -- thus also eliminating one of the few spots of goods inflation in the CPI.

The world of farming has become one of brief booms and long busts. I guess nine months of living la vida loca was enough. Our brief flirtation with general inflation may very well be over, too.

Of all people, a retail consultant discerns precisely the structural significance of Wal-Mart to the class struggle in the United States.
"I fundamentally believe that Wal-Mart has made a middle-class lifestyle possible for at least one, if not two, generations of Americans who, unlike their parents, are having to spend huge sums of money on medical insurance and the cost of housing," said Paco Underhill, president of retail consulting firm Envirosell and the author of several books on why and where people shop. "That money has had to come out of something, and Wal-Mart has helped American families not be downwardly mobile."

The US working class is getting anything at all out of neoliberalism because of the "low low prices" generated by the global dispersion of industrial production, unequal exchange between North and South, and the big-box retailer who presses suppliers to the wall. With stagnant real wages, a prostrate union movement, global capital mobility, and X, Wal-Mart is the only thing keeping much of the working class above water and within reach of a "middle class" consumerist lifestyle. Eliminate Wal-Mart and the entire 'lowest common denominator' strategy of global neoliberalism runs smack into the wall of its political contradictions. Then there really will be nothing left to lose but your chains -- provided for $1.89/ft. at Target, no doubt.

An interesting bit of evidence in today's Washington Post demonstrating the growth of oligopoly: the demise of the trade show.
Consider, for example, the National Hardware Show that, for 25 years, was among the biggest gatherings at Chicago's giant McCormack Place. This show was an efficient way for tens of thousands of small retailers and wholesale suppliers to interact with thousands of large and small manufacturers, picking up on trends, trying out new products, placing orders, negotiating prices. It was also a way for exhibitors to build personal relationships that could sustain them even in years when they didn't have the best products or the best prices.

But how relevant is this, now that the neighborhood hardware store has been bought up or driven out of business? The remaining giants such as Home Depot, Lowe's and Wal-Mart now avoid the time and expense of sending armies of buyers to Chicago. They simply summon all companies that want to sell hammers, for example, to show up on the same day at their headquarters, where they sample the wares and play one against another in a day-long bidding war. In time, those that lose these contests disappear, while those that win get big enough that they, too, decide they can bypass the trade show, turning instead to the Internet and their own marketing events.

. . . With so many industries in the midst of consolidation, with distribution channels fragmenting and with so many other ways for people to communicate and interact effectively and efficiently, the heyday of the giant, industry-wide trade show may have passed.