Posts Tagged ‘hurricane sandy’

The hurricane delayed things. The latest report on US consumer confidence was due on Tuesday, but in the end it had to wait until Thursday. When it saw the light of day, the news was good.

Last month US consumer confidence, according to the Conference Board, hit its highest level since February 2008. If these things interest you, the index hit 72.2.

Actually, QE may have something to do with it. When the Fed goes out and buys bonds via quantitative easing, it forces up bond prices. As a result, equity prices rise (probably) and house prices stop crashing (maybe).  US consumers like it when their equity holdings rise in value, hence the jump in their confidence.

But there was more good news from the US. The latest Purchasing Managers’ Index (PMI) from ISM was out yesterday too, and while it was not exactly the stuff that runaway booms are made of, it wasn’t half bad either. In fact the headline index rose to 51.7, from 51.5 in September and 49.5 in August. Okay, they’re just numbers.  “How are you feeling today?” “Today I feel three?” It makes no sense. Consumers’ confidence is 72.2, manufacturers’ 51.7. You might ask 51.7 what? Wishes perhaps?

But it’s the history that makes these numbers mean something. For the PMI, any score over 50 is meant to suggest growth, and the reading for October was the highest score since May.

This evening (2 November) the latest US jobs report will be out. The last one had US unemployment falling to 7.8 per cent, pretty much back to the level it occupied when George Dubya and Dick Cheney moved out of the White House.  (And someone called Obama moved in). If the data is good, Barack will surely be chuffed.

Not that he must look too chuffed. It does seem as though the world is divided into three. Those who think Barack gets pushed around, does not speak up for himself, and needs to do the political equivalent of punching Mitt Romney on the nose. Then there are those who say he looks Presidential and rises above that kind of nastiness. Then there are those who just don’t like him.

Returning to the US economy, house prices may be the key. Back in 2006 residential investment as a share of US GDP was 6 per cent. In 2012 it stood at just 2 per cent. No wonder Uncle Sam lost a shed load of jobs.

Of course, the fall in US house prices mattered for two other reasons. As prices fell, consumers lost confidence (and by the way in July 2007 the US consumer confidence index passed 110), and it mattered for another reason.

What was it now? Thinking…

Oh yes, that’s right, it led to the subprime debacle, followed by a global banking crisis.

According to Keith Wade, Chief Economist at Schroders: “The number of residential properties in negative equity at the end of the second quarter was 10.8 million (22.3 per cent), down from 11.4 million (23.7 per cent) at the end of the first quarter….around 1.3 million households have moved out of negative equity since the beginning of 2012, although 2.3 million remain in ‘near-negative’ equity (less than 5 per cent equity in the property). For these homeowners the incentive is to pay down debt before looking to borrow again.”

The truth is that US house prices have been rising of late – not much, but the downward trend seems to have reversed. Mr Wade put it down to QE. He said: “Whilst QE may not be stimulating stronger borrowing, it is helping to drive investors out of low yielding cash and bonds and into higher yielding assets such as property.”

Meanwhile, devastating though Hurricane Sandy was, at least America seems to be waking up to the reality that there is something odd going on with the climate. Who knows for sure whether the storm was down to climate change, but there has to be a chance. New York Mayor Michael Bloomberg reckons there is a connection, hence his Road to Damascus type of conversion to back Obama for the election.

But moving away from the US economy, while Sandy might have given a shock to climate change sceptics, the ‘Daily Mail’ recently ran a piece rubbishing the whole idea of manmade climate change. Apparently global temperatures have not risen since 1997. Except of course, the data was distorted by an El Nino at the beginning of the period in question and La Nina at the end of the period. Strip out the effects from the El Nino and La Nina from the data, and in fact global temperatures have very much been on an upwards trajectory since 1997. Anyway, talking about rubbish, here is a link to the ‘Daily Mail’ article, see: Global warming stopped 16 years ago, reveals Met Office report quietly released… and here is the chart to prove it

And here is a rebuttal from the Met office:

The ‘Mail’ makes the case for some kind of censorship of the press in pretty impressive fashion.

And finally, here is a piece by yours truly covering a rather shocking idea to put forward by Martin Wolf at the ‘FT’. He has suggested that the Bank of England needs to start buying foreign bonds so that sterling will tumble in value. See: Is it time the Bank of England started buying foreign debt?

©2012 Investment and Business News.

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As the earthquakes became worse, the ancient Minoans demanded blood. Clearly the gods weren’t happy, so it was time to make more human sacrifices. Of course, there were occasions when a blood sacrifice was followed by less seismic activity, which was cited as proof positive that the policy worked.

Except of course, from our enlightened position in the 21st century we get causation. Any fall in natural disasters following a religious ritual was a coincidence. There may have been a time when a leader of a country was also a priest, charged with appeasing angry gods, and such people were held responsible when the gods wreaked havoc, but these days we are a touch more sophisticated.

Perhaps you could, at a pinch, blame hurricane Sandy on manmade global warming, but it would be stretching credibility to blame any individual for the storms hitting the US East Coast. Some people across the pond are very anti-Barack Obama, but it seems not even they blame him for hurricane Sandy.  Although Obama they say can do his election prospects some good by looking presidential.

Yet the logic that says Obama was responsible for the poor US economic performance of the last few years is not much different from blaming a Pharaoh for lack of rain.

Two economists who have led the charges against Obama are Professor John Taylor and Glen Hubbard.

The argument runs like this. In the past the US has seen much more rapid recovery from a recession. This time recovery has been slower, ergo, Obama is to blame. Some go further, and say ergo Obama is the Devil, meaning maybe he was responsible for hurricane Sandy after all.

Martin Wolf, the ‘FT’s’ economic guru, has been crossing swords with Professor Taylor. The prof says that even in the 1930s, the US saw sharper recovery than it is now. ‘Duh’, replies Wolf, ‘that was because after 1929, when US authorities messed up, failed to support banks, and made cutbacks, the resulting contraction in the economy was enormous. Of course growth was higher in the aftermath because it had further to grow from’. See: You can’t measure an economy’s performance on recovery alone http://blogs.ft.com/martin-wolf-exchange/2012/10/29/you-cant-measure-an-economy-on-recovery-alone/#axzz2AjECcdQW

Professor Taylor then compared the US performance today with its recovery in the late 1800s. Wolf countered with the argument that surely it is more realistic to compare the US today with other economies across the world, such as Japan, the UK, the Eurozone, or even China.

It takes an extraordinary level of arrogance about the superiority of your country to think the fact that the rest of the world is suffering a very severe economic shock bears little or no relevance to your country.

Over at the ‘New York Times’, it’s been a case of daggers at dawn between Nobel Laureate Paul Krugman and Glen Hubbard.  According to Hubbard, the US recovery should have been V shaped.  In the UK – where the debate is over whether the economy will be W, An elongated L, or even a letter than hasn’t been invented yet – the idea of a V shaped recovery feels like a pipe dream. Krugman says the Romney team is ‘waving’ little things like facts away, because it is politically convenient to do so. See: More Financial Crisis Denialism http://krugman.blogs.nytimes.com/2012/10/28/more-financial-crisis-denialism/

The fact is, of course, that the US economy has been posting figures that we in the UK envy. It may well be that the US recovery has been stronger because it has had less austerity. It is certainly absurd to say that if Obama had been Austerian in his approach, the US recovery would have been stronger.

But where both Krugman and Wolf may have it wrong is not conceding that there is any benefit to creative destruction at all. Recession can correct bad habits, remove poor practice, and ensure only the very fittest companies with truly strong business models can survive.

The snag is that right now the debate between economists is black and white. Either we need to let the economy correct via allowing failure, or we have a really massive Keynesian push. There seems to be no middle group. Maybe what we really need is both, and economists are so blind to their adversaries’ opinions that they are forcing us to make a choice, when what we really need is the best of both worlds.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here