The truth has become very elusive to both government officials and media types. Although I don't believe that Bloomberg and Wall Street Journal reporters are deliberately distorting the news (most reporters are on the short side of their careers. It is another story with columnists), they are either misinterpreting economic data and comments by market participants and government officials or they are being told what to write by their superiors.
Case in point. Today's Initial Jobless Claims report indicated that initial jobless claims fell by 12,000 jobs from a previous report of 643,000. Most media outlets reported this as good news. First, another week of over 600,000 NEW unemployment benefits claimants is not good news. Secondly, the prior week's tally of 643,000 initial jobless claims was revised upward from 637,000. The proper way to look at the Initial Jobless Claims data is to state that since last week's report of 637,000 initial jobless claims, there have been a total of 637,000 new jobless claims (631,000 this week plus 6,000 missed in last week's tally). The situation has not improved. This can be evidenced by Continuing Claims which reported that the number of people on the unemployment dole increased to 6,662,000 from a prior revised 6,587,000.
Some misinformation is more deliberate. Treasury Secretary Tim Geithner offered rising long-term treasury yields as evidence that investors believe the economy is improving (he should talk to El-Erian of PIMCO and the FOMC). The reason long-term treasury rates are rising is because of the large quantities of current and future treasury debt issuance, an expected weaker dollar and the possibility that the U.S. could lose its AAA credit rating. He fails to mention that short-term treasury yields have fallen in recent weeks, a sign that investors still place a high priority on safety and liquidity.
Speaking of the news media, I was corresponding with an acquaintance of mine who happens to be a journalist at the Wall Street Journal. I asked him why the Credit Default situation with regard to GM bondholders has not been discussed in the media. He sent me a link to a brief article published last week in the Financial Times. Here is the link:
http://www.ft.com/cms/s/0/1e2bf9ea-3e54-11de-9a6c-00144feabdc0.html?nclick_check=1
FOMC
The FOMC is not convinced that the current signs of economic stabilization are long-lasting. The Fed minutes indicate that FOMC members believe that the recession may be longer lasting and deeper than originally forecast. Fed officials also believe that growth may be slower than to what we have become accustomed when the economy finally begins growing again in late 2010 or 2011.
I am not surprised by this. The U.S. economic has been on a 25-year high fueled by every lower interest rates. Cheaper and cheaper financing coupled with easier lending standards brought about by financial innovation has caused U.S. economic growth to explode. However, the economy will have to grow based on productivity gains and structural improvements. Potential anti-business policies which have become popular on Capitol Hill threaten do sink us into an economic morass similar to that of the 1970s.
I have not been a fan of former Fed Chairman Alan Greenspan making comments which could be perceived as undermining the efforts of current Fed Chairman Ben Bernanke. There is an unwritten rule that the preceding Fed Chairman will stay out of the spotlight as to not hamper the efforts of the presiding Fed Chairman. However, Mr. Greenspan makes some astute observations in his most recent comments.
Mr. Greenspan warned that banks need to raise large amounts of capital. The former Fed Chairman told Bloomberg News: “There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded." He continued: “Until the price of homes flattens out we still have a very serious potential mortgage crisis.”
Readers who have been with me since my former publication (with the initials M.S.) may recall that I wrote last year that there could be no lasting recovery until home prices stabilized. I also argued that if the government had let home prices drop early on, instead of taking action to prop up prices, the damage could have been much less severe as buyers would have come off the sidelines to pick up bargains while credit was still available with less onerous terms (silly things like down payments and income verification). But hey, the government knows best.
Speaking of our Washington Wonders, they (especially President Obama and his minions) are doing a good job of re-locking the credit markets and hindering troubled asset relief. Actions taken by the administration to strong arm creditors (some of which were senior and secured) to accepting less compensation than its union benefactors (whose claims on Chrysler and GM is so subordinate they are in Hell's sub-basement) are causing institutions once interested in participating in TALF and PPIP to have second thoughts. Apparently the Obama administration believes that contract law should be usurped if it runs counter to the President's interpretation of social justice. So much for being a country of laws. We have now become a country of political whims. Some private equity funds are considering not lending money to firms with union employees. Could the administration really that naive? I'll let you decide.
This Memorial Day, please remember those who gave their all so we can enjoy our burgers and beers.
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