The gap widened last week between those who believe the economy is recovering and others who see only a deepening abyss. A report released on Friday by the Commerce Department appeared to vindicate the pessimists, at least for now: Supposedly, 85,000 more jobs vanished in December. You can be sure this number was bent, stretched and massaged vigorously to put the story in the most favorable possible light. Under the circumstances, if that’s the best the spinmeisters can do, then we can only infer that the outlook must be bleak indeed. But there may be a silver lining: From a political perspective, assuming the payroll picture gets worse before it gets better, there could be some big, and potentially constructive, changes when mid-term Congressional elections are held next fall. With just six or seven more Republicans in the House, and only a few more in the Senate, Obama’s bold attempt to remake America into a paradise for bureaucrats and leftist lawyers will likely grind to a halt. Let’s hope the Republicans are ready to seize the initiative, rather than succumbing to the temptation to gloat over what by then will be the Democrats’ steep rise and fall.
Nowhere in the story about how 85,000 jobs were lost did we find a despairing note about what this might imply for the supposed economic recovery. To the contrary, the Wall Street Journal remained steadfastly in denial with this seemingly paradoxical lead sentence: “Employers cut another 85,000 jobs last month, dashing hope of a turnaround in employment, even as the U.S. economy grows.” How’s that again? Do they mean for us to infer that the economy can keep growing with no growth in employment? As far as we’re aware, the only place where both the economy and employment are unquestionably booming is in Washington, D.C., where a reported 175,000 new jobs have been created to gear up for Obama’s Sweden-ization of the U.S. The payroll story went on to explain that the economy grew at a 5.4% clip in Q4, according to Macroecomic Advisers, a St. Louis forecasting firm. We wonder why the Journal would go to some St. Louis forecasting firm for its numbers, unless that firm is in on the fix. In any event, with jobs and real income (see chart above) both falling, and anecdotal evidence of a turnaround almost impossible to find, it’s reasonable to ask what kind of growth the Journal and the dubious forecasters it relies on are talking about. We’ll believe the economy has returned to health when we read about it at John Williams web site, Shadow Government Statistics. (Late-breaking note: Consumer credit plunged a record $17.5 billion in November – much steeper than the $5 billion drop that had been expected. The Journal et al. are already trying to spin this startling new development as a “lingering restraint” on the economy. In fact, it is evidence that economy’s collapse is about to steepen at an alarming rate.)
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Real Estate prices are crashed?…. too low in America? No not really. I had bought my 1600sqft single family, 2 car garage, new development home in south Scottsdale in 1985 for $110,000 with a pool. I sold it at market price 10 YEARS LATER for $120,000. That’s called bad luck and bad timing and so life goes.
TODAY’s asking price on that same street is still well over $200,000 with a short sales available for $180,000.
That’s still a double in price since 1995. Banks have screwed the world with their manipulative games…that’s the sad stuff.
Cheers, Mario
Coming soon: Social Security Cuts, by the 1989 author of Secrets of the Temple, How the Fed Runs the Country. Even the Left sees what’s coming…
Conservative Mogul Buying Up Reporters to Promote His Regressive Agenda
By William Greider, The Nation
Posted on January 6, 2010, Printed on January 11, 2010
Here’s the link:
http://www.alternet.org/story/144961/
Interesting times these:
Re using nukes on Terrorists other than depleted uranium, those that live by the sword die by the sword. Only in this case, nuclear winter takes a lot of people with it, not necessarily to consort with 72 virgins.
Re Nigerian Energy Markets, civil war and death of their leader may account for some of the rise in crude, but not all, since Iraq is coming back onstream and Iran closing the Hormuz awaits. Big4 still long Crude.
Immortal corporations, foundations and trusts become immoral as Constitutionalists who proscribed their foreign emoluments tried to stop them 300 plus years ago. Re walking away from mortgages, read this latest DC corporate bonus Scam, another mass media headline bait and switch. Big4 still Short Bonds and Notes. Electoral Revolution may be so close, we can smell it…
Moneynews
Fannie, Freddie Chiefs Still Get Big Paychecks
Fri, 08 Jan 2010 11:49 AM
As the nation’s thoughts turned to eggnog and gift-giving on Christmas Eve, the news hit: “Fannie Mae, Freddie Mac executive compensation significantly reduced.”
Better yet, the government said the pay would be more aligned with “taxpayer interests.”
All this sounded like a reason for some holiday cheer. One might expect the government to keep pay under tight control at the mortgage giants, which have taken $111 billion in taxpayer money over the last year and just got a blank check for more.
Instead, the taxpayer got scrooged.
Left out of the government’s news release were the numbers that really mattered — like the fact that Fannie and Freddie’s CEOs could make at least $6 million all in cash for 2009, and possibly more. That puts them on track to make 15 times what President Barack Obama earns, who is technically their boss.
A year after Fannie and Freddie got bailed out and amid continued promises from the Obama administration to rein in executive pay, the plump pay packages — which were disclosed in the companies’ securities filings — show not much has changed.
“This highlights the myth of pay reform out of Washington,” said J. Robert Brown, a professor of business law and corporate governance at the University of Denver and expert on compensation issues. “This is a sign that the government isn’t going to do much about the problems of pay.”
This should have been an easy one for the government, which wields power at Fannie and Freddie unlike anywhere else. Both companies were taken over by regulators in the late summer of 2008 after being crippled by nearly $15 billion in losses as the housing market tanked.
Fannie and Freddie play a vital role in the mortgage market by backing three-quarters of all new residential mortgages. They purchase loans from lenders and sell them to investors with a guarantee against default.
Traditionally, the companies had backed loans to relatively safe buyers, but they lowered their standards during the housing boom by getting into risky mortgages. Not only are those loans defaulting at a record pace, but formerly reliable homeowners with good credit are also defaulting in increasing numbers now that one in 10 Americans is out of work.
As their losses mounted, Fannie and Freddie got another gift from U.S. taxpayers on Dec. 24: Now the government will cover any of their losses through 2012, lifting an earlier cap of $400 billion.
“On Christmas Eve, not only do they announce unlimited taxpayer exposure to losses, they also come out with big pay and bonuses for the executives,” said Rep. Jeb Hensarling, a Republican from Texas who has called for congressional hearings on the matter. “This whole experience is surreal.”
The government’s move to back all losses at Fannie and Freddie raises more questions about their future. There have been calls from lawmakers and industry groups to transform or replace the mortgage giants, but the Obama administration has yet to lay out an overhaul plan.
The government makes a fair point that despite the companies’ troubles, Fannie and Freddie play an integral role in the housing recovery and must be led by competent executives.
“The enterprises must attract and retain the talent needed to accomplish these objectives,” said Edward DeMarco, the acting director of the Federal Housing Finance Agency, which regulates the mortgage companies. His comments came in a Dec. 24 statement announcing the agency’s approval of the pay at both companies.
None of the regulators or companies would discuss the compensation beyond what they had already disclosed.
There isn’t a right answer for how much Fannie and Freddie’s executives should earn because there is no magic number that can be put on any executive’s pay at any company.
The government’s announcement made a big point about the pay packages for the CEOs at Fannie and Freddie being 40 percent less than what the top executives at those companies got before the government takeover.
That’s fine, but let’s remember that these failed companies are now owned by taxpayers. The government didn’t have to offer them public-sector pay, but that doesn’t mean they should be compensated at market rates for leaders of Fortune 500 companies.
Regulators consulted with the government’s pay czar, Kenneth Feinberg, on how to design Fannie and Freddie’s executive compensation. The FHFA said that the new pay packages use the “same general structure” as Feinberg implemented at the seven companies receiving the largest amount of bailout funds under the $700 billion Troubled Asset Relief Program, or TARP.
At companies including AIG and GMAC, Feinberg cut cash payouts and boosted stock compensation, most of which executives have to hold for at least two to five years.
Fannie and Freddie did something different. With the stocks of both companies nearly worthless, there was little choice but to pay their top executives in cash. Two-thirds of the 2009 pay isn’t hinged on performance, but executives have to stay at the company to receive it.
According to securities filings, Fannie’s CEO, Michael Williams, and Freddie CEO Charles “Ed” Haldeman Jr. each got $900,000 in salary for 2009. They also will get $3.1 million in what is known as “deferred salary” that will pay out in four cash installments over this year, corresponding with the quarter it was earned in 2009.
The CEOs then each stand to earn at least another $2 million in cash if they met certain 2009 performance goals. It can be higher than that if they exceed the goals. That compensation will be paid out in 2010 and 2011.
“This compensation is coming in the form of payments that they are more likely to get, without much risk,” said Kevin Murphy, a professor at the University of Southern California who advised the Treasury Department on pay issues last summer.
There was a chance here for a break in the cycle of bloated executive pay. Instead, we got business as usual.
Regards*Rich
Impressed by Rick’s 1149.50 SPX call.
Re the edge of the cliff not happening, people are most ebullient at the top.
And yes, Big Banks with Fed and TARP liquidity now being withdrawn drove this market up. Even the Fed is warning the banks to be prepared for a 400 basis point jump in rates. Look at the yield curve for a preview.
Bottom line: Big4 short big stocks.
Re the headline of another -85,000 (big business and government) jobs reported last week, with CNBC Ron Insana on Kudlow expecting a good number, that ignores -589,000 December (small business) jobs lost reported by the more volatile Census Bureau Household Survey.
One wedding swallow does not a summer make.
Re the Dollar, Big4 short again, for how long we do not know.
How can we assert a devalued dollar solves the debt problem when it creates bigger problems called cost of living, imports and insolvency?
The next big things to collapse may be DC Wall Street Property, TimeShares, $42,000 Volts, $1000 HDTVs and $500 SmartPhones.
What’s good for GE, GM, GS or Morgan Stanley is definitely not good for most Americans these days.
So what’s wrong with the wage chart is that it is an average, not median or mode.
When BLS average real hourly working wages in with Wall Street $700,000 bonus babies, we see a skewed number that does not represent America, but a privileged masters of the universe. (The Bald GS TARP guy who quit calmed down at his Lake Tahoe retreat before going to work for PIMCO.) This suggests why most flyover people without Pro athlete or Hollywood Star incomes find BiCoastal media headlines suspect.
As John Williams shows, real GDP growth per capita declined since Reagan in 1984. Yes ruling Ds and Rs served bankster masters and corrupted the Reagan Supply Side Revolution. They blew it ignoring debt, claiming we could grow out of debt like WWII. (Not with House Reps borrowing and growing government spending faster than the economy and population.) There are still a few good people left in government who put country first. Since Abraham it has always taken only a few. Maybe it will take complete collapse for constructive change. If so, it may be knocking at the door. Some of the worst hacks realized they won’t be reelected in 2010 and resigned like failed Presidential Candidate Tailgate Patsy Schroeder under the Clintons. The cleansing has begun.
Tea Party Revolution is in the air, favoring Internet Constitutional Independents, not purchased media party hacks.
Boston Globe is owned by NYT, so of course their ‘scientific’ polls report a 15 point advantage for the Dead Ted Kennedy heir apparent. Sad, really. Like recent elections, Nevada and Reid, most recent polls reported anyone but the incumbent beat their party. Carbon climate healthscare taxes are blunt voter trauma. Wall Street likes gridlock, so that’s what we may get, although Intrade still shows Ds on top after Nov elections. Maybe they will adjust to fiscal sanity if 0Care goes down in flames.
Re “Houses and stocks always recover to higher highs eventually,” small comfort to folks from 1929 to 1949. We had smaller debts and a gold standard then. Speaking of Gold, Big4 is still short, for how long we do not know.
The observation that “No one I know carries cash any more” says it all. This economy may be an accident waiting to happen, with contractions in money supply and credit warning the Day of Reckoning. What will people do if their ATMs or Internet Accounts are turned off for a banking holiday?
Well that’s enough cheer for today. It’s QID time. Regards*Rich
The economy has historically performed the best when the White House or Congress is controlled by different parties. No new legislation is passed, and companies/businesses learn how to adapt to the current conditions.
Please, let’s not confuse M3 GROWTH with M3 LEVELS.
See charts for clarification: http://www.shadowstats.com/alternate_data/money-supply-charts
M3 Growth dove due to overheated presses , i.e. public outrage. Those presses will be rolling again to pay for the coming commercial real estate loan reset and default damage, as well as the interest on the deficit and bonds bought with the part of the M3 level that did not decline!
M3 Level has just slightly declined, due mainly, I presume, to bank cartels repaying bailout funds and buying T bills with the money not used to manipulate markets. Have no doubt! We WILL have too much money chasing too few goods soon enough.
Well… maybe the glory days and the morality of the 1950’s will return! NOT! Ha ha!
“By the way, Rick, maybe we don’t have to wait until November for political change because a Republican is now polling 1 point ahead of the Democrat in the race for the Ted Kennedy Senate seat which will be decided very soon in a special election (Jan 19?)”
Coakley is leading Brown by 15 points according to this poll.
http://www.boston.com/news/local/massachusetts/articles/2010/01/10/senate_poll_coakley_up_15_points/
As for political change, you will see nothing of the sort coming from either Republicans or Democrats. All you will have is rhetoric designed to fool you into pulling the lever for the two kleptocrat parties.
&&&&&&
Anything, even a few more dysfunctional, hypocritical, double-dealing Republicans, would improve the present Congress. If Obama retains his voting lock on both houses beyond 2010, there’s no telling how much damage he’ll do to the Republic. RA
By the way, Rick, maybe we don’t have to wait until November for political change because a Republican is now polling 1 point ahead of the Democrat in the race for the Ted Kennedy Senate seat which will be decided very soon in a special election (Jan 19?).
That race appears to be turning on the Health Care Bill which is not popular even in a place like MA. Brown is asking voters to specifically send him to D.C. to derail Obama Care by ending the 60 vote Dem majority … that is why he is spiking bigtime in the polls.
Great article, Rick. Love the analysis on that recent job number. Few talk about the huge padding that goes into even the bad numbers that are released! You are so right. It likely means the truth behind any bad number fudge must be absolutely fugly.
And, yes, John Williams’ Shadowstats shows M1, M2 declining and M3 diving hard according to a recent Mish article/chart, also Denninger has the chart, I think. This M3 news is more significant coming from Williams because Williams had been tracking the explosion in M3 money supply for the past few years (that other observers had doubted). And when a guy who has diligently tracked big inflationary trends for a period now shows massive contraction in the same indicators … well, when that happens a guy like Peter Schiff (inflationista) has got to scratch his head and wonder what the heck is going on here.
What’s going on is deflation.
The record $17.5 billion consumer credit plunge in November amounted to an 8.5% annual rate of decline. This was Total consumer credit. Included in that figure is an 18.5% decline in “revolving” credit. Most people I know (co-workers, friends, family and acquaintances) us credit cards to get the “cash back”, frequent flyer points and enjoy the convenience of not carrying cash. Then once a month, write a check or go online to pay it off in full. No one that I know carries cash anymore. Just try to get change for a $20 bill from someone these days. Since nearly everything we buy these days is charged, even groceries, one can easily see that the consumer has pulled in his horns and is not making discretionary purchases.
We know that our economy is a Service economy. We don’t build or make things that the rest of the world needs anymore. We buy the things we need (made somewhere else in the world), and then pay to have them serviced or replaced. Therefore it’s clear to me that we won’t turn this economy around until the consumer is spending more, much more. But at an 8.5% annual rate of decline, Consumer credit is imploding and taking the economy with it, causing further job losses down the road resulting in even less consumer spending: an economic death spiral.
“Let’s hope the Republicans are ready to seize the initiative, rather than succumbing to the temptation to gloat over what by then will be the Democrats’ steep rise and fall.”
LET’S NOT! There is no lesser of two evils here. The two parties can in no way be construed as anything but a big part of the problem. The United States will have no chance of moving forward if it continues to be suckered by the two headed hydra that is The Republicrats.
Rick, whats so bad about that chart? Wages have fallen but are still above where they were 2 years ago and well above where they were 15 years ago. I’ve gotten 3 raises in the last 2 years.
Home prices have fallen, sure, but just like wages are still well ahead of where they were 20 years ago. Wages, house prices are just like stocks. they get ahead of themselves and correct back down, but always recover to higher highs eventually.
I also see no real threat from deflation. EVERYTHING I have to buy is going up in price. Look at commodities, they are going nuts.
I also don’t buy the theory that stocks are rising because of “excess liquidity” . Seems to me that excess liquidity could just as easily be used to sell stocks. If the economy were on the verge of implosion, IMO, there is no way stocks would be rising like they are. I find it hard to believe that those “in the know” would be buying stocks if the economy were about to fall off a cliff. Sorry, I just don’t see it happening.
I’ll know you’re serious about fixing the system when you realize that both parties are on the opposite sides of the same coin. Until I see people recognize the system for what it is, I know we haven’t hit the bottom yet.
Funny stuff. If the Republicans do like they usually do the deficit will quadruple in no time flat. Cut some more taxes, don’t touch the corporate pork or the military industrial complex, or the health industrial complex, or the financial industrial complex. That’ll work. After all to Republicans “deficits don’t matter”, and they stick to that philosophy whenever they are in power (although when out of power they temporarily make other noises). Bush blew such a big hole in the budget and the economy that no one, and I mean no one can fix it … until the dollar melts down … and then real change will be forced from outside. Sad but true.
Rick,
As I mentioned last week, I do have some anecdotal evidence about some increase in recovery expectations. As I said, my daughter’s wedding reception business will have a record breaking year in 2010 after having a 50% dropoff in 2009 from 2008. Now, in spite of some obscure Bob Dylan quote from someone, I think it is some evidence that there is a feeling that things will continue to improve. Take it for what it is worth.