As expected, taxpayer-funnel-equipped Goldman Sachs posted a staggering record profit, up 65% from last year, and exceeding analyst expectations by over 39%. How lovely for them. The AIG money-laundering conduit worked well; it's awfully nice having your man in Treasury... and everywhere else in the Federal government, for that matter. Zero Hedge noted that anti-Goldman Sachs sentiment is on the rise - gosh, really?
Meanwhile, CIT group is doing a really good job of looking like its in serious trouble. Of course, here comes the tax money funnel! Karl has very cranky commentary here.
Mish Shedlock recalculates the new CPI numbers using a more rational measure of housing costs and asserts that just as inflation was understated previously, it's overstated now. Using Case-Shiller numbers for housing costs rather than the Fed's owner-equivalent-rent scenario (which to my mind has not ever made sense), you're looking at price deflation of 6.2% year-on-year. Meanwhile, to the shock of no one - at least, I hope, none of you lot - OptionARM loans are imploding at furious rates, worse than subprime. The San Francisco Chroinicle reports that 26% of US home mortgage defaults are "strategic" in nature, which is to say, "calculated economic decisions to bail out of loans by owners who actually have the money to make the payments but can't handle the negative equity they're carrying caused by local property value declines."
Bloomberg and CBS Radio were both reporting this morning that consumer sales rose in June. Local CBS Radio affiliate KIRO had the decency to break it out a little and note that all of the rise was in essentials; Bloomberg didn't. Karl Denninger further notes that all of the rise comes from higher gasoline prices - prices of gas have gone up, demand is relatively inelastic, more money is spent. Actual amount of goods sold? Not so much with the up. Take out gas and fire-sales on cars, and you have yet another month of retail sales fall. (Redbook confirms: 1st week July down 1.7%, 2nd week July down 5.7%, y/o/y.)
Dell suddenly looks shaky. It's "reviewing alternative sources of capital as customers continue to curb technology purchases." Karl Denninger has been a busy boy (and I've been lazy so I'm linking to him a lot today), taking apart the Intel report:
In what [Dell] call[s] the "Digital Enterprise Group" (PCs, servers, etc) revenue is down 17% from Q2/2008 for CPUs and 30% for chipsets and motherboards... it implies rather strongly that there may be as much as a thirty percent decline in enterprise-class shipments compared to 2008... This is not a bad report, but the embedded reality on business-class sales, which was born out in comments on the conference call and echoes what DELL said earlier in the day, paints a rather dark picture.Tech people, take note. They also laid off 2.5% of their workforce in meeting their targets.
Bottom line: Intel knocked the cover off the ball with superior business management, not on the prospect or hint of economic recovery.
The Fed is talking about a "jobless" recovery, reportedly through 2010. Mish thinks that if Bernanke's talking outright about a jobless recovery that we should be looking for a "job-loss recovery" where jobs continue to be lost even in "recovery" phrase. Dr. Roubini at RGE Monitor expects U-3 unemployment to peak around 11% in 2010 and remain above 10% "for a long time":
Moreover, many employers, seeking to “share the pain” of the recession and slow down the rate of layoffs, are now asking workers to accept cuts in both hours and hourly wages. Thus, the total effect of the recession on labor income of jobs, hours and wage reductions is much larger.This is a deflationary analysis. More: "Worse still, in the medium turn the monetary overhang may lead to significant inflationary risks as a period of sharp deflation may be followed – from 2011 on – by a period of rising expected inflation and disorderly weakening of the U.S. dollar." He sees the official recession lasting through the rest of the year, running some 26 months before technically ending. You may enjoy the 2Q 2009 RGE Monitor US Economic Outlook Preview if you want more details.
Other indicators are suggesting a protracted period of job losses and a persistently high unemployment rate even after the recession is over. The average duration of unemployment is not at an all time high in the U.S. Many manufacturing sectors are on a secular decline (autos, etc.) and employers are shedding jobs on a permanent basis; employment in the previously bubbly sectors (housing and related housing/real estate services, banking and financial services) is falling sharply and will not recover for a long time. The process of offshore outsourcing of both blue collar and white collar jobs is still in full swing. A lot of the job losses in the U.S. and in other advanced economies are structural rather than cyclical; many jobs will never come back.
Mark Dow at the CFR analyses the drop in the US trade deficit with China in some detail. I think he puts too much on the value of increased Chinese demand - because almost all of this is in declines in US imports, not increased Chinese imports - but:
...I have long said (and have made a few bets with friends) that the Chinese trade balance will likely be in deficit by the end of this year. This means that the need for China to buy our treasuries will have largely gone away. I realize this may be too aggressive a contention over this time frame, but I am convinced the basic story is right. And to my mind’s eye there isn’t an exchange rate regime or Renminbi level that can stop this from happening.Bold added for emphasis. Meanwhile, the Democratic Party of Japan's shadow finance minister urged diversifying away from the US dollar. At about the same time, the Obama administration indicated that there would be no second stimulus package.
A laser pointer should not be necessary to connect these dots.
The dollar index is back below 80; oil has fallen to $60/barrel. Economic confidence numbers fell. And that's all for tonight; good luck tomorrow.