News Can the market alone fix the economy?

[Astronuc]

Is that fair towards those who have been more prudent in their investments?

How does one define prudent? If the bonds were graded AAA or AA or whatever, that would be considered prudent. On the other hand, perhaps the ratings agencies didn't properly grade the bonds because they didn't perform due diligence.

It's been pretty obvious for a while (ref: Micheline Maynard, The End of Detroit, 2003) that GM, Ford and Chrysler were in trouble.

Some bondholders invested their own money, while other bondholders invested other peoples' money. Some did it on misguided faith, while for others it seems to be a calculated risk.

Relating to prudence, the bonds probably pay a higher rate than the rate of inflation. If one were to buy treasuries or fixed income/money market instruments that pay 2-3% interest annually, then one's money will not grow beyond the rate of inflation, and in fact may have less purchasing power in the future for some times, e.g. healthcare for which the cost seems to be escalating at 10%/yr.

Usually, the higher the rate of return, the higher the risk. Some people have the luck where they invest in something and it pays out at many times the investment. Many others are not so fortunate or lucky.

 

[rootX]

Is that fair towards those who have been more prudent in their investments?

I was just reading the following article:

http://www.theglobeandmail.com/news/opinions/article708243.ece

The bonds issued by Fannie and Freddie were widely thought to carry an implicit U.S. government guarantee. Even though there was no official guarantee, Washington's failure to come to the rescue could destroy confidence in government debt, and, by association, other financial paper as well.

Consider investors in Fannie and Freddie bonds. While the U.S. government never officially promised to bail them out, it did create a special agency, the Office of Federal Housing Enterprise Oversight, which was to assess their strength in an annual report. But this agency never even acknowledged there was a housing bubble. Government leaders gave no warnings. So can we really say that investors must suffer the full consequences of any losses? How can this be fair?

But obviously, it doesn't take a lots of brain to recognize the boom-busts.

Some 2000 articles from Wall Street Journal:

"New forces are powering US stock surge" - E.S. BROWING THE Wall Street Journal
One line from this article - "Today markets often are moved by ordinary people clicking a mouse"

"Internet stock frenzy is manias of manias" - GREG IP The Wall Street JournalWould you have believed these guys?

 

[OmCheeto]

I bought a new Ford yesterday. Does that help?

 

[Astronuc]

The Obama administration is set to announce the bankruptcy and restructuring of GM -

http://www.nytimes.com/2009/06/01/business/01auto.html

http://www.nytimes.com/interactive/2009/05/31/business/20090531_GM_TIMELINE.html


The current recession is unlike the last several - Once a Key to Recovery, Detroit Adds to Pain (NYTimes)

http://www.nytimes.com/2009/06/01/business/economy/01econ.html

With General Motors about to follow Chrysler into bankruptcy, the nation’s ability to bounce back from the steep recession is being hobbled.
. . . .
Even now, in its diminished state — representing only 11.5 percent of America’s output, down from 20 percent in 1980 — manufacturing could have a bigger impact than its size suggests, because of its tendency to respond quickly.

“Back then, it supercharged the recovery,” said Mark Zandi, chief economist at Moody’s Economy.com, “and today it could have played a decisive role if G.M. and Chrysler had remained viable companies. Without their contribution, the economy simply can’t recover as quickly as it has in the past.”

Those two giants [GM & Chrysler] alone accounted for 10 percent of the upturn after the early 1980s recession, Mr. Zandi said, but this time they will be a drain on growth rather than a contributor to it.
. . . .
“No other industry is stepping up to the plate to replace the Big Three and their suppliers as engines of growth,” said Nigel Gault, chief domestic economist for I.H.S. Global Insight, “and without the kick they once provided — resuming production and recalling workers faster than others — the recovery will be slow in coming and muted at best.”

Chrysler’s decision to shut down its factories and G.M.’s move to idle most of its locations this summer will inevitably have a domino effect on the nation’s 4,000 suppliers, most likely undoing the fledgling improvement that forecasters see in slightly stronger retail sales and consumer confidence.
. . . .
The damage already done by the auto industry is sobering. Of the 5.7 million jobs lost since this recession began 18 months ago, 1.6 million were in manufacturing, and 289,000 of those were in motor vehicles, split almost evenly between the assemblers and their supplier networks.
. . . .

http://news.yahoo.com/s/ap/us_automakers

GM's bankruptcy filing is the fourth-largest in U.S. history and the largest for an industrial company. The company said it has $172.81 billion in debt and $82.29 billion in assets.

$90 billion in the hole - now down the drain!

ibid.

GM shares fell as low as 27 cents in Monday morning trading, their lowest price in the company's 100-year history. The News Corp. unit that oversees the Dow Jones industrial average said GM will be kicked out of the index on June 8 and be replaced by Cisco Systems Inc. The index's rules prohibit it from including companies that have filed for bankruptcy.

 

[mheslep]

http://news.yahoo.com/s/ap/us_automakers

GM's bankruptcy filing is the fourth-largest in U.S. history and the largest for an industrial company. The company said it has $172.81 billion in debt and $82.29 billion in assets.

GM is the largest manufacturing failure in history and its impact I suspect is much different than the banks. The earlier bank failures ( e.g. Lehman) were larger only in the obligations on their books.

 

[Astronuc]

Some apparently good news on the energy side -

U.S. Gas Fields Go From Bust to Boom
http://online.wsj.com/article/SB124104549891270585.html

Look for opportunities to invest in gas leases or gas exploration/development companies.

 

[turbo]

Tough times in Maine's industrial sector. Wausau Paper had shut down one if its paper machines in Jay last year, and yesterday, they shut down the remaining machine. The equipment is being prepared for long-term storage in the hopes that it can be sold eventually. That mill was once (long ago) the largest producer of newsprint in the country, and it has been an important employer for that small town.

Sappi has 3 very modern high-speed on-line coated fine-paper machines a few miles from here (I was lead operator during the start-up of the first) and they can't afford to stockpile any more paper, so they are taking rolling shutdowns instead of laying off employees. Every week, a different paper machine is shut down and the other two produce paper. Since the down-time is of short duration, the employees don't qualify for unemployment assistance - they just have to live with the 1/3 cut in pay. That mill makes high-quality glossy stock that is used in publications where print quality is paramount, like Elle and other fashion magazines, and high-end catalogs. With the soft economy, sales are down.

 

[mheslep]

Uh oh. The yield on 10 year treasuries are climbing fast, up over 3.7% now. With the GDP still in the toilet that shouldn't be happening - unless - the market has decided the US government has and/or will be borrowing too much money, that is, inflation is thought to be on the way.
http://online.wsj.com/mdc/public/npage/2_3050.html?symb=&sid=1224040&page=bond&symbChange=aaaaa~0&time=3yr&freq=1dy&DrawChart.x=58&DrawChart.y=8&startdate=&enddate=&type=64&compidx=aaaaa~0&comp=Enter+a+symbol&ma=1&maval=100&lf=1&lf2=4&lf3=1024

 

[misgfool]

Tough times in Maine's industrial sector. Wausau Paper had shut down one if its paper machines in Jay last year, and yesterday, they shut down the remaining machine. The equipment is being prepared for long-term storage in the hopes that it can be sold eventually.

Coming from a country with a previously strong pulp and paper industry, it is more or less common knowledge that almost all paper qualities are overproduced.

 

[misgfool]

May figures came in. 9,4%.

http://www.nytimes.com/2009/06/06/business/economy/06jobs.html

 

[Astronuc]

Intel is moving ahead

Intel Buys a Software Company to Extend Chip Market
http://www.nytimes.com/2009/06/05/technology/companies/05chip.html

I listened to an interview with Intel's CEO a couple of months ago. He talked about a commitment to invest several $billion this year. So companies like Intel will maintain the economy and drive the recovery.

 

[mheslep]

Intel is moving ahead

Intel Buys a Software Company to Extend Chip Market
http://www.nytimes.com/2009/06/05/technology/companies/05chip.html

I listened to an interview with Intel's CEO a couple of months ago. He talked about a commitment to invest several $billion this year. So companies like Intel will maintain the economy and drive the recovery.

I am slightly suspicious of this decision. The company, VmWare, is a virtual operating system company that has been changing the nature of big server count data centers. That is, where there previously was ten hardware servers and ten Intel CPUs, now there's one or two servers hosting ten virtual servers. That is a big win for the user, but at some level it must be threatening Intel sales. Now Intel has much more control of the market.

 

[Astronuc]

Something to consider while we wait for the economy to be 'fixed'.

The Economy Is Still at the Brink
http://www.nytimes.com/2009/06/07/opinion/07cohanWEB.html

I think the US GDP should be reported with and without the government expenditures/investments so that we get a real picture of what the rest of the economy is doing. We cannot afford to live off Uncle Sam's credit cards.

 

[mheslep]

We're getting some early anecdotal experience on just who is going to be running the car companies, despite administration claims to the contrary:

http://online.wsj.com/article/SB124416281882387463.html

The latest self-appointed car czar is Massachusetts's own Barney Frank, who intervened this week to save a GM distribution center in Norton, Mass. The warehouse, which employs some 90 people, was slated for closure by the end of the year under GM's restructuring plan. But Mr. Frank put in a call to GM CEO Fritz Henderson and secured a new lease on life for the facility.

Mr. Frank's spokesman, Harry Gural, says the Congressman discussed, among other things, "the facility's value to GM." We'd have thought that would be something that GM might have considered when it decided to close the Norton center, but then a call from one of the most powerful Members of Congress can certainly cause a ward of the state to reconsider what qualifies as "value." A CEO who refuses the offer can soon find himself testifying under oath before Congress, or answering questions from the Government Accountability Office about his expense account. To that point, Mr. Henderson spent Wednesday with Chrysler President Jim Press being castigated by the Senate Commerce Committee for their plans to close 3,400 car dealerships. Every Senator wants dealerships closed in someone else's state.

As Mr. Gural put it, Mr. Frank was "just doing what any other Congressman would do" in looking out for the interests of his constituents. And that's the problem with industrial policy and government control of American business. In Washington, every Member of Congress now thinks he's a czar who can call ol' Fritz and tell him how to make cars.

Rep Frank is not new to pulling the strings of the government funded business; he also intervened some months w/ Sec. Geitner to save a Mass. bank by redirecting some TARP funds.
-This on top of the recent conversation the President had with the Mayor of Detroit to assure him that GM would not move its headquarters elsewhere in Michigan as GM had be discussing.

 

[Astronuc]

We're getting some early anecdotal experience on just who is going to be running the car companies, despite administration claims to the contrary:

http://online.wsj.com/article/SB124416281882387463.html
Rep Frank is not new to pulling the strings of the government funded business; he also intervened some months w/ Sec. Geitner to save a Mass. bank by redirecting some TARP funds.
-This on top of the recent conversation the President had with the Mayor of Detroit to assure him that GM would not move its headquarters elsewhere in Michigan as GM had be discussing.

That just seems plain wrong. I imagine one could make a case for coercion.

Referring back to the Constitution - Section 9 - Limits on Congress

No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another.

It somehow seems to me that most earmarks for things like transportation in specific districts violate the spirit of the intent of the authors of the Constitution. I wonder if they foresaw favoritism in the form of 'earmarks'.

 

[mheslep]

Whoa, not so fast Government Motors! Here we go, a few hours ago today from the supreme Ginsburg, a very, very rare action:

Supreme Court of the United States
No. 08A1096
INDIANA STATE POLICE PENSION TRUST, ET AL.,
Applicants,
v.
CHRYSLER LLC, ET AL.

IT IS ORDERED that the orders of the Bankruptcy Court for the
Southern District of New York, case No. 09-50002, dated May 31 and June 1,
2009, are stayed pending further order of the undersigned or of the Court.

I never had understood all the statements in the press about how the federal government could just do whatever it wanted with TARP money, authorized by congress, or manhandle and mandate all of these bond holders to do whatever they wanted. There's a contract, there's the TARP law, and if you break it you get sued whether you are Joe Smith or Uncle Sam (aka Chysler/GM here). Apparently so.
http://online.wsj.com/public/resources/documents/08A1096INPolicePensionvChryslerOrder.pdf
http://online.wsj.com/article/SB124447718295294527.html#mod=testMod

I forecast some heavy government pejorative comments against the investors, though the one - Indiana State Teaches fund may escape.

 

[Astronuc]

An interesting article on the deficit(s)/debt.

How Trillion-Dollar Deficits Were Created
http://www.nytimes.com/interactive/2009/06/09/business/economy/20090610-leonhardt-graphic.html

and related article
America’s Sea of Red Ink Was Years in the Making
http://www.nytimes.com/2009/06/10/business/economy/10leonhardt.html

. . . .
The New York Times analyzed Congressional Budget Office reports going back almost a decade, with the aim of understanding how the federal government came to be far deeper in debt than it has been since the years just after World War II. This debt will constrain the country’s choices for years and could end up doing serious economic damage if foreign lenders become unwilling to finance it.
. . . .

That is one of my concerns. The other is that there does not seem to be a viable plan to reduce the deficit spending, and there are looming obligations, e.g., social security and Medicare, that are not being addressed.

 

[mheslep]

An interesting article on the deficit(s)/debt.

How Trillion-Dollar Deficits Were Created
http://www.nytimes.com/interactive/2009/06/09/business/economy/20090610-leonhardt-graphic.html

and related article
America’s Sea of Red Ink Was Years in the Making
http://www.nytimes.com/2009/06/10/business/economy/10leonhardt.html..

Ug. This NYT piece is sycophantic BS. It has all been 'years in the making'? Let's not look at the current deficit explosion because its been years in the making? Debt accumulation during the Bush years is attributed to "Bush Policies", but debt accumulation now is attributed to the "Current Recession".

"All the news that's fit to print." Please. This stuff on top of the bogus front page McCain affair article during the campaign, Pulitzer awards for bogus stories, etc. Maybe the NYT should be added to the PF banned sources list.

 

[Astronuc]

Energy is a critical factor in the future of the US and global economies.

A friend sent this to me.

The GOP's Energy Alternative
We need more nuclear power
http://online.wsj.com/article_email/SB124467604217304035-lMyQjAxMDI5NDE0MTYxNzE2Wj.html

I still have to work through the details. I am concered about the Henry Waxman and Edward Markey plan to establish a cap-and-trade system that will sharply limit carbon-dioxide emissions and increase energy prices. It may not work as they intend.

Plus the trading system just seems to be a way fo middlemen to make money for doing nothing but getting in the way. I'd just as soon see good technology used to reduce fuel consumption and CO₂ emissions.

 

[turbo]

Plus the trading system just seems to be a way fo middlemen to make money for doing nothing but getting in the way. I'd just as soon see good technology used to reduce fuel consumption and CO₂ emissions.

It would be nice to see the coal-fired plants in the midwest that give Maine mercury, acid-rain, and constant ozone alerts in the summer months be monitored AT THE STACK and be required to adhere to standards that allow down-wind citizens to have cleaner air to breath. Currently, the generators put the air-monitoring instrumentation close to the plants and build stacks that shoot the effluent so far into the atmosphere that the local sensors are totally by-passed. They pretend to behave properly, while passing the pollution down-wind.

 

[Astronuc]

Amid Recession, One Automaker Is Prospering
by Dan Bobkoff

http://www.npr.org/templates/story/story.php?storyId=105227106

More Cozy Coupes are sold each year in the U.S. than Toyota Camrys or Honda Accords.


Now, if only they came is adult sizes.

 

[mgb_phys]

More Cozy Coupes are sold each year in the U.S. than Toyota Camrys or Honda Accords.

Now, if only they came is adult sizes.

They do (or did), and made by BMW

 

[OmCheeto]

Did everyone miss the press release on the 2011 Corvette?

http://www.goodyblog.com/playing_house/images/2007/11/05/flinstonemobliejpg.jpg

 

[Astronuc]

They do (or did), and made by BMW

I was actually thinking of a larger plastic Cozy Coupe model with pedals and a windshield.

I've seen a few SmartCars around town, but I'd like something that uses pedal power as opposed to gasoline, and with a cover. That might get a bit warm in the middle of summer though.

http://www.smartusa.com/smart-fortwo-pure.aspx

 

[Ivan Seeking]

http://img196.imageshack.us/img196/1233/fortuneteller1.jpg

http://img196.imageshack.us/img196/8583/fortuneteller2.jpg

 

[Phrak]

Oddly enough, an 'economy' is destroyed by engaging money in activities that add lesser value or even produce none. Just as oddly, an 'economy' improves by engaging money in activities that add better value.

Is there anything else that need be said about how economies are damaged, and how economies recover from damage?

The magic bullet is labor in productive tasks. Why is this not obvious? Sitting at a computer and offering why is not one of them.

 

[mheslep]

http://img196.imageshack.us/img196/1233/fortuneteller1.jpg

http://img196.imageshack.us/img196/8583/fortuneteller2.jpg

 

[Astronuc]

Why more engineers are losing jobs

http://marketplace.publicradio.org/display/web/2009/06/17/pm_endangered_engineers/

Even in a recession, a lot of people think tech jobs are a safe bet. But American engineers are losing their jobs faster than any other professional sector. Janet Babin reports.

Kai Ryssdal: Engineers weren't always thought of as the coolest people in the room, the whole pocket-protector stereotype and all. They did usually have jobs, though, when it was tough for others to find work. The rise of the high-tech economy has finally given engineers a measure of respect. I mean, who doesn't love somebody who can figure out your computer networking problems on the fly?

But now engineers are losing their jobs faster than people in a lot of other professions are. Even graduates of the best schools are getting laid off as companies downsize and outsource operations to other countries. And the answer is not all about finding cheaper labor, either. Janet Babin has more from the Marketplace Innovation Desk at North Carolina Public Radio.
. . . .
Oechslin graduated from Stanford University last June with a master's in mechanical engineering. He specialized in electronic gadgets. He quickly landed a job as a systems engineer in the semi-conductor industry.

You're probably thinking boring. Actually, Oechslin designed robots. But it didn't last long. His job was soon outsourced to another country.
. . . .
According to industry trade group IEEE, engineers of all stripes are losing their jobs at a faster rate than other professions. When the economy sours and money's tight, research and development becomes expendable. So do the engineers that staff R&D.

Hewlett-Packard, Microsoft and IBM have shed thousands of jobs this year, many in technology. According to industry trade group IEEE, engineers of all stripes are losing their jobs at a faster rate than other professions. When the economy sours and money's tight, research and development becomes expendable, and so are the engineers that staff R&D.
. . . .

IBM engineer, Rick Clark thought his job was secure, but then he got laid off (like a lot of other IBMers I know).

That wasn't the only surprise. Clark's manager handed him a brochure about an IBM program called Project Match. It offers laid-off employees new positions with the company. But there're in emerging markets like India and China. Engineers there typically earn less than half the salary of their U.S. counterparts. IBM transplants like Clark would earn the going rate.

An engineer needs to be diversified with numerous skills. Even then one cannot count on job security.

 

[Astronuc]

Slow recovery rate for many U.S. cities

http://marketplace.publicradio.org/display/web/2009/06/17/pm_cities_recovery/

A report from the Brookings Institution says that only about 10 of the top 100 cities in the U.S. show signs of economic health. The institution's Alan Berube talks with Kai Ryssdal about how the nation's cities are recovering.
. . .
Kai Ryssdal: For all the talk of an economic recovery that you're hearing it helps to remember this: Most of the recovering that's going on out there is at the national level. Things like the entire economy losing fewer jobs. But you break it down a bit to states or even farther to cities, the recovery gets less clear. Some big metropolitan areas are doing all right. Others really aren't. In a report out today the Brookings Institution surveyed the country's top 100 cities. Only 10 of them are showing any signs of bouncing back at all. So for starters, I asked Alan Berube from Brookings' Metropolitan Policy Program why one of them, Austin, Tex., is doing so much better than others.

Alan Berube: Like a lot of the other better performing metropolitan areas, it's first about what they do. And Austin, of course, is a state capital so concentration in government has been a good thing. That's an industry that really hasn't shed many jobs over the course of the recession. And it's a university center as well. Home to a big one, if not the biggest public university in the nation, and that's a sector that's actually added jobs over the course of the recession. So what people do in Austin accounts for some of their performance.
. . . .
BERUBE: Yeah, that's right. I mean, there's of course been this relentless attention to the national figures coming out of Washington, the jobs, the GDP, the unemployment rate. And we think that tends to miss what is a tremendously diverse U.S. economy on the ground. And we look at that economy through the lens of metropolitan economies, our labor markets, our housing markets. When you look at it through that lens you find that, yeah, all metropolitan areas have been hurt to some degree but that pain is shared very, very unequally. So on the way down this is an uneven recession, which indicates that when we finally turn the corner it's going to be potentially a very uneven recovery.
. . . .

I've certainly seen it in the northeast and other parts of the country.

MetroMonitor: Tracking Economic Recession and Recovery in America’s 100 Largest Metropolitan Areas
http://www.brookings.edu/reports/2009/06_metro_monitor.aspx

June 2009 —
Beneath the constant drumbeat of headline numbers emanating from Washington on U.S. jobs, national unemployment, GDP, and home prices lies a complex, diverse set of 366 metropolitan economies. While no metro area has been immune from the current economic downturn, the pain is unevenly distributed. Some have felt only modest effects, and a few show early signs of recovery, while others are undergoing a wrenching restructuring that may fundamentally alter their economic trajectory.
. . . .

http://www.brookings.edu/~/media/Files/rc/reports/2009/06_metro_monitor/06_metromonitor.pdf

http://www.brookings.edu/metro/MetroMonitor.aspx

 

[mheslep]

http://marketplace.publicradio.org/display/web/2009/06/17/pm_cities_recovery/

I've certainly seen it in the northeast and other parts of the country.

MetroMonitor: Tracking Economic Recession and Recovery in America’s 100 Largest Metropolitan Areas
http://www.brookings.edu/reports/2009/06_metro_monitor.aspx

http://www.brookings.edu/~/media/Files/rc/reports/2009/06_metro_monitor/06_metromonitor.pdf

http://www.brookings.edu/metro/MetroMonitor.aspx

I heard that report - re the large variations in recession conditions among metropolitan areas. Detroit seems to be an utter disaster, experiencing 1930's depression unemployment. Retailers, large ones, just leaving town. It is akin to the 19th century ghost town examples. At the other end is Austin, Tx, doing quite well.